Why do we ask this question? Because NRS 318.515 instructs that where “a [general improvement district (“GID”)] of which (its) board of county commissioners (“County Board”) is not the (GID’s) board of trustees is not being properly managed…upon notification by the Department of Taxation or…receipt of a petition signed by 20 percent of the qualified electors of the district (the County Board may)…(a) Adopt an ordinance constituting the board of county commissioners, ex officio, as the board of trustees of the district; (b) Adopt an ordinance providing for the merger, consolidation or dissolution of the district pursuant to NRS 318.490 to 318.510, inclusive; (c) File a petition in the district court for the county in which the district is located for the appointment of a receiver for the district; or (d) Determine by resolution that management and organization of the district…remain unchanged.”

So with that said, our answer to the question posed is no.

The Opinions of Third Party Professionals: Don’t take our word for it. Listen to the many professionals the Board has recently engaged. For instance,

The Moss–Adams Evaluation of Certain Accounting And Reporting Matters:

“We (have)videntified the following observations as opportunities for the District to improve its accounting and reporting practices (with respect to)…whether: certain of the District’s activities should be reported in enterprise funds vs. governmental funds; the allocation of central service costs; punch card accounting; and(,) whether the District’s current capitalization policies and actual practices are in agreement with applicable accounting standards.”

• Enterprise Fund Accounting. “The District used enterprise funds to account for its recreational activities within Community Services and Beach prior to 2016…A change was made to report these activities within governmental funds at the direction of former management staff…Since 2016, the District has used separate special revenue funds to report the activities of Community Services and Beach, along with separate capital projects funds to account for resources used to finance capital expenditures for Community Services and Beach, and separate debt service funds to account for resources used for the repayment of debt the proceeds from which were used to fund capital assets acquired to provide the services reported within Community Services and Beach…(Given) these activities are better suited to be treated as enterprise funds(,) the District should report these activities through the use of Enterprise Funds.”

• Overhead Cost Allocations. “The District incurs costs that benefit multiple activities reported within the various funds. Management uses two methodologies to account for, and allocate, those costs to the benefitting activities. One is the use of an Internal Service Fund (ISF), and the other is the initial accounting and reporting of certain ‘central service costs’ as expenditures within the General Fund. Activities accounted for in the ISF are charged (directly) to the activities benefitting from the services provided through an interfund charge. Central services costs initially recorded in the General Fund are allocated to the various activities/funds that (allegedly) benefit and reported separately by a negative expenditure in total in the General Fund financial statements along with expenditures/expense in the benefitting activity/fund for amounts allocated in their fund financial statements…The calculation of each activity’s share of central service costs is based on averaging each activity’s share of estimated full-time equivalents, and budgeted wages, employee benefits, and services and supplies…

Improvements c(an) be made in the allocation methodology…Determination of the bases of allocation should take into consideration cause and effect relationships, the value of the benefits received, fairness, and a connection between an activity’s desire to utilize the service and the cost to be incurred by that activity as a result. As examples, allocation based on cause and effect could include number of employee full-time equivalents, budgeted labor hours, building space occupied, number of PO’s processed, number of checks issued, number of invoices processed, number of computers used and connected to the network, etc. (And,) different bases could be used for separate types of costs…

If the current method of reporting expenditures initially within the General Fund is maintained, the expenditures and reporting of the related income as a negative expenditure should be removed from the General Fund and only reported as expenses or expenditures in the reimbursing funds…(Alternatively,) the District should consider accounting for central services within an Internal Services Fund instead of through reimbursements to the General Fund. ISF’s provide a mechanism to accumulate costs that benefit multiple activities/funds, allow for the capturing of all costs on a full accrual basis, and ISFs are specifically provided for in (Generally Accepted Accounting Principles) GAAP and the NRS. The use of ISF’s require the setting of rates for interfund charges, over time, on a cost-reimbursement basis. Therefore, actual charges to benefitting activities will, over time, equal the actual costs incurred…

(And) to better match the costs of services used by each activity, we recommend identifying the different types of costs to be allocated and using a basis for allocation for each type that better aligns with the drivers of that cost to the benefitting activities. The current allocation of cost is based on an averaging of four different elements that is heavily weighted toward the direct budgeted costs of each activity which may not be the best reflection of the level of central services needed by a particular activity…

Whether the District sticks to its existing practice of initially accumulating joint costs in the General Fund, or switches to the use of an Internal Services Fund, we recommend that interfund charges eventually become based on actual costs incurred.”

• Punch Card Reporting. “By Resolution, and through the budget adoption process, the Board determines the assessment of…Facility Fees among the different recreational activities reported in Community Services and Beach funds, as well as amounts allocated for capital asset acquisitions and debt service benefitting the activities within these two funds. To take advantage of the privileges provided by Ordinance 7, members have the option of receiving a picture pass or punch cards to present when utilizing the various recreational activities and facilities that, among other benefits, allow for reduced pricing compared to rates charged the general public.

We found that the District has been utilizing a contra-revenue accounting methodology that tracks the location where picture passes and punch cards are presented for use at the various recreational venues, as well as to recognize the value of the punch cards between the Community Services and Beach venues…The District currently tracks the utilization of picture passes and punch cards and records a value of the punch cards within the fund and activity for which the(y)…(a)re presented for use through a contra-revenue accounting procedure. (But) the contra-revenue accounting methodology is confusing to stakeholders, complicates the budgeting process, and requires more time and effort than the perceived benefit it provides…(For these reasons), we recommend the District discontinue the use of contra revenue accounting for the utilization of punch cards for the reasons noted.”

• Accounting For Capital Expenditures. “The District has routinely treated a number of different types of expenditures initially as capital outlays and included in the capital asset account titled ‘construction-in-progress’. These costs are allocated to and included with the costs incurred to actually construct a project and reclassified to other capital asset classifications once projects are completed. Costs initially included in construction-in-progress include master plans, feasibility studies, and payroll costs for certain District employees like engineers involved in the District’s capital asset planning processes…

We find that the District’s practice of capitalizing expenditures incurred in what would meet the definition of the preliminary stage of a project…is inconsistent with…accepted practice. Examples include payments to external consultants and internal staff payroll costs to develop master plans, feasibility studies, and related engineering and overall system planning. Current established practice includes the capitalization of certain costs incurred in a preliminary stage such as engineering, architectural, and design for projects that are actually constructed to the extent those costs would have been necessary for the project in any event. In addition, we find that the District has capitalized expenditures incurred for repair projects without a careful consideration of portions…incurred that bring the asset back to its previous service capacity and therefore should be expensed, versus the portion…that actually increase…the service capacity and or significantly increased the asset’s useful life. When a particular project has elements of both repairs and improvements, an appropriate portion of the cost should be allocated to repairs and therefore expensed, and a portion to the improvement and capitalized…

The District is in need of developing more robust capitalization policies that provide for the different stages of a capital project, how to handle costs incurred in each stage, clarification on the nature of expenditures that increase the service capacity and therefore appropriate to capitalize, and the nature of expenditures that are repairs and maintenance…Costs incurred for master plans, feasibility studies, exploration of various project financing alternatives; and all internal payroll costs for engineering, planning, and administrative efforts incurred in what would fall into the preliminary project stage should be expensed when incurred. Only costs incurred in the preliminary stage for projects actually constructed that are necessary project costs and related to adding to service capacity should be eligible for capitalization.”

The Raftelis Utilities Management Review And Asset Assessment:

• “In the past five years, a group of vocal residents has raised questions regarding District management, oversight, and funding…District staff has been the subject of increased scrutiny and even accusations by the public with regard to operating efficiency and financial practices. The public here, as in many places nationwide, demands a high level of accountability and transparency to ensure proper stewardship of its resources…In response, several new members were elected to the Board of Trustees. The District’s Audit Committee, previously a subcommittee of the Board, was also expanded to include public members and has undertaken a detailed review of the Financial Reports. In addition, the District has experienced significant management turnover, including the key management positions of General Manager, Director of Public Works, and Director of Finance. District management and staff is responding to questions about past practices and working to build public trust while undertaking one of the largest capital projects in its history…There is new scrutiny on financial reporting mechanisms, funding methods, operations, and communications.”

• “Th(us this) assessment encompasses a review of utility activities, staffing and the structure of the organization, the condition of assets, and management, including the financial management of operations activities and capital investments. Raftelis is leveraged both national and peer data to make benchmarking comparisons…to other destination communities that feature outdoor recreation venues and…have seasonal population changes…Th(is) assessment includes (the following) 17 recommendations to improve utilities operations and efficiency:”

• “Recommendation 1: Finalize a new strategic plan for the District as a whole including specific elements (and metrics) for recreation services and utilities. The District’s strategic plan expired in 2020…An updated strategic plan ensures everyone is ‘rowing in the same direction’ and provides a framework upon which departments can build strategies and specific goals.”

• Recommendation 2: “Build public trust by creating a strategic communications plan. It is important to build trust to ensure residents know the District is being governed and managed well, is financially compliant and transparent, and that staff is held accountable for results. By investing in a comprehensive communications plan, the District can acknowledge past issues and communicate the many steps being taken to move forward and continuously improve. It can also market to the community the value of District services and ensure transparency of available performance and financial information. Finally, it will assist in improving staff morale by recognizing their work and achievements.”

• Recommendation 3: “Build public knowledge about the value of IVGID’s utilities operations…Few outside of District staff are familiar with the operations and its complexity. It is important to educate by sharing this information with the Board, other staff, and the public through educational outreach, open houses, and tours. By sharing the extent of the utility operations and the District’s role in environmental sustainability in the region, the District can build support for its role.”

• Recommendation 4: “Reconsider the membership and role of the District’s Audit Committee…(Because) how the District handles the finances and management of (its) utilities does have a direct bearing on their success…Raftelis is providing (its) recommendations on membership and role of the District’s Audit Committee.”

• Recommendation 5: “Reduce the Utility Superintendent’s direct reports. The ideal span of control is considered three to five direct reports.

“The Administration Division of Public Works…plays a critical function for the utilities by ensuring meters are read and bills are prepared. It…consists of one Administrative Manager, one Meter Reader, and two Customer Service Representatives…The Administrative Manager reports directly to the Director of Public Works…The primary concern for this unit is coverage and backup. There is no backup for the Administrative Manager position, and no career path for the Customer Service Representatives (CSRs)…When a CSR is out of the office, the Administrative Officer must perform their tasks, including simple tasks such as doing deposits or answering the phone. When the Administrative Manager is out, many activities must be put on hold…If the Manager is out for a period of time, there are concerns that critical functions can’t proceed. In addition, there has been some turnover at the CSR level as they become trained but move to a higher-paying position when one becomes available in the District or elsewhere. This is extremely detrimental to the District as it reportedly can take up to a year for a CSR to get fully up to speed.”

The Troon Golf Course Management Proposal:

• “IVGID has engaged multiple consultants (who)…do not have the expertise (n)or resources to effectively execute on their recommendations.” Moreover, these consultants lack the “deeper operational knowledge to develop and implement to…maximize the resident lifestyle and guest experience.”

• The District’s various “reports reviewed (demonstrate that the consultants the District has engaged)…do not understand the industry.”

• Moreover, “previous GM candidates have come from municipal backgrounds, which are…not characterized as Hospitality Centric, Efficient (n)or Business focused.”

• Therefore, although “expectations have been that (any new) GM will have the capability, bandwith, and experience to impact change across all departments, (this) is not realistic.”

• “It is impossible to think one individual will have the experience and capabilities to…meet the expectation(s) of…IVGID without additional (financial and manpower) support.”

The RubinBrown Forensic Due Diligence Accounting Services Report:

• “We have identified a high risk of fraud and abuse within IVGID’s control environment given the aggregation of the internal control weaknesses identified at the transactional level all the way through the review and monitoring process of internal controls within the District. IVGID’s lack of internal controls around the financial reporting function makes it difficult for the organization to effectively detect or prevent inappropriate activity.”

• Tyler Munis Implementation. “There has been an ongoing lack of consistent and timely issuance of financial reporting since the Tyler Munis (accounting) system implementation occurred. This is due to an unsuccessful implementation, which is a result of poor planning and poor execution.” Translation: High Risk of Fraud!

• Initiators and Approvers of Vendor Disbursements. “We identified several instances involving vendor disbursements that were made by an employee that both initiated and approved the disbursement, as well as several instances involving vendor disbursements that had no approver (whatsoever)…Seven IVGID employees authorized disbursements without approval…Additionally, eight IVGID employees authorized and approved their own disbursements, which represents the lack of proper segregation of duties within the disbursement process.” Translation: High Risk of Fraud!

• Insufficient Support for Vendor Disbursements. “We selected thirty samples to obtain vendor support to assess the appropriateness of the disbursement and validity of the vendor…We identified two instances where disbursements were paid to various vendors with no underlying support…Additionally, we identified five instances where disbursements were paid to various vendors with…no third-party support available (i.e., vendor invoice verifying the amount due). The risk with no third-party support available for a disbursement is there is no confirmation that the vendor is not fictitious and no verification of the amount due.” Translation: High Risk of Fraud!

• Operating Bank Account and Bank Reconciliations. “There is a (single) IVGID operating bank account used for daily and normal operating activities…Bank reconciliations over th(is)…account (have) not (been) performed in a timely manner…The lack of performing timely reconciliations is a result of the loose internal control culture within the District.” Translation: High Risk of Fraud!

• Other Bank Accounts and Bank Reconciliations. “Per our review, IVGID has other bank accounts, aside from the operating bank account, including: a payroll bank account…a heath reimbursement bank account…a flexible spending bank account (and,)…a holdings bank account…IVGID does not perform bank reconciliations on the(se)…bank accounts. The lack of performing timely reconciliations is a result of the loose internal control culture within the District.” Translation: High Risk of Fraud!

• Operating Bank Account Reconciliations Have Unreconciled Differences. Moreover, “we observed that the reconciliations show large unreconciled differences between the bank statements and the general ledger balances.” Translation: High Risk of Fraud!

• Cash Entries Posted to General Ledger. “Based on our review of the (limited) bank reconciliations available, we observed that IVGID would manually record a monthly lump sum entry into the general ledger to take into consideration the net cash activity shown in the operating account’s monthly bank statements. Individual entries for the individual cash transactions in the operating account were not recorded in the general ledger. Further, we also observed that the lump sum manual entries were not recorded in the accounting system in a timely manner.” Translation: High Risk of Fraud!

• Treatment of Capital Costs. “The capital asset activity spreadsheet and trial balance information provided for our review were not at a sufficient level of detail to permit the selection of individual transactions for testing…Thus, we were unable to obtain and test additions to construction in progress (‘CIP’) for…fiscal year 2021…For…fiscal year 2022 we were provided a spreadsheet of capital asset activity for the fiscal year…However, we were unable to reconcile additions, disposals, and resultant ending balances of capital assets per the spreadsheet…and we were not provided explanations for the unreconciled balances…For…fiscal year 2023 we were provided a spreadsheet of capital asset activity for the fiscal year. Since the fiscal year 2023 audit was not finalized by the external auditors as of our testing date, there was not an audited, finalized fiscal year 2023 ACFR to use in connection with the reconciliation.” Translation: High Risk of Fraud!

• Capitalization of Projects Relating to Repairs and Maintenance. “We observed projects relating to repairs and maintenance that were capitalized instead of expensed.” Translation: High Risk of Fraud!

• Green Fee Pricing Schedules Not Followed. “There is a pricing chart for each golf season that includes golf pricing for each of the IVGID golf courses. The pricing takes into consideration the time of day, day of week and month, and also if the customer is a resident, non-resident, or guest of a resident. We identified instances where the green fee paid by the customer was less than the green fee reflected in the pricing chart, and no support was available to verify that the discounted price was appropriate and/or approved by an appropriate level of authority.” Translation: High Risk of Fraud!

• Insufficient and Inappropriate Support for Procurement Card Transactions. “We sampled individual procurement card expense reports and observed the following: (1)…one…expense report…where a general ledger transaction report was provided as support (notwithstanding)…a general ledger transaction report does not provide (sufficient) support…(2)…two…expense reports where no support (whatsoever) was available…(3)…three…transactions where the support did not tie to the transaction amount. (4)…four…expense report instances where…the invoice line-item details that made up the total amount charged (was)…not shown;” all in violation of the District’s procurement card policy.

• Personal Use of Procurement Cards. “We identified two instances involving the same employee that made personal transactions using their procurement card….Using procurement cards for personal transactions is not allowed under the IVGID policy.” Translation: High Risk of Fraud!

• Sales Tax Charges. “IVGID is tax exempt and (its) purchases should not be charged…sales tax. (Yet) over the scope period, there were approximately 93 active procurement cards with…approximately $1,485,903 (of charges where)…approximately $11,586 (of)…sales tax” was paid. Translation: Incompetence to The Nth Degree!

• Oversight of Procurement Card Program and Related Expense Reports. “There is limited review of…procurement card activity, including analysis of…spending or a high-level review of…expense reports.” Translation: High Risk of Fraud!

• Physical Inventory Observations and Reconciliations. “IVGID has not performed inventory observations…including, for example, retail shops and food and beverage…Further, IVGID does not keep records of food and beverage inventory, including alcohol…and thus reconciliations are not performed over this type of inventory…The lack of performing timely reconciliations is a result of the loose internal control culture within the District.” Translation: High Risk of Fraud!

• Inappropriate User Access in Point-of-Sale Systems. “IVGID employees do not have an individual user account assigned to them…but instead share…user accounts…among multiple individuals…We observed user accounts that are unlocked (and)…assigned to terminated or resigned employees. We also observed user accounts that are…unlocked (and) do not tie to a past or current IVGID employee.” Translation: High Risk of Fraud!

• Contracts Awarded May Exceed Board of Trustees Funding Approval. We found where “contracts awarded to specific project numbers…exceed(ed) the Board of Trustees funding approval.” Translation: High Risk of Fraud!

• Community Programs and Funding Not Approved by Board of Trustees. “There are various instances where community programs, such as memorials, skate parks, and ballparks, for which funding…may have occurred without approval by the Board of Trustees.” Translation: Arrogance!

• Expenses Incurred Prior to Board of Trustees Funding Approval. “Spending activity for projects may occur prior to obtaining project approval from the Board of Trustees…Based on our review of…IVGID purchasing policies, there is no discussion o(f) the aggregate dollar limit that can be incurred prior to Board of Trustee approval,” if any. Translation: Arrogance to the Nth Degree!

• Community Programs and Funding Not Approved by Board of Trustees. We found “various instances where community programs, such as memorials, skate parks, and ballparks, for which funding by specific organizations may have occurred without approval by the Board of Trustees.” Translation: Of Concern!

• Seasonal Discounts at Merchandise Stores Not Approved by Appropriate Level. “Various employee discounts, resident discounts, and seasonal discounts are provided at the Championship Golf Course and Mountain Golf Course merchandise stores. (Although) employee discounts and resident discounts are approved by the Board of Trustees(,) any discount more than the employee…or…resident discounts, including Black Friday discounts, pre-season discounts, and end-of-season discounts, are set by the merchandise store manager and…not independently reviewed or approved by an upper level of authority. (Moreover,) no documentation records of these approved discounts during the scope period (we)re available.” Translation: Bothersome!

• Lack of Internal Controls and Oversight at IVGID Golf Courses. “We identified various instances during the scope period where green fees were reduced to $0 as an individual was provided a complimentary round of golf. (Although) complimentary rounds of golf are available for specific circumstances including…most complimentary golf rounds that reduce green fees to $0 do not have documentation on the rationale and/or individual who approved the complimentary round of golf…The lack of proper internal controls at the golf courses and other IVGID parks and recreational facilities is a result of the loose internal control culture within the District.” Translation: Bothersome!

• Employee Clothing Allowances. “The ‘Memorandum of Understanding Between…Incline Village General Improvement District and the Operating Engineers Local Union No. 3’ provides that IVGID employees in certain public works divisions are eligible to receive a $630 clothing allowance per fiscal year for uniforms, rain gear, boots, and hip boots. As of June 30, 2023, there were approximately 26-34 public works employees who were eligible to receive this clothing allowance…Per review of procurement card transactions, expenses with a description containing ‘uniforms’, ‘rain gear’, ‘boots’, and ‘hip boots’ totaled approximately $54,028 for the scope period. (But) of this total, (only) approximately $4,124 were expenses related to five employees eligible for the clothing allowance.” The remaining approximately $50,000 of expenses were related to employees who were not employed in certain public works divisions. “Additionally, there were two instances where an eligible employee expensed more than $630 for uniforms in a fiscal year.” Translation: Embezzlement!

The Christopher Sarten High Level Assessment of District Food & Beverage Operations:

• “Due to a lack of consistent leadership in both F&B and accounting, many critical best practices have fallen below industry standards, or ceased entirely.”

• “There are two ways revenues are being recorded into (the) Tyler [point of sale system (‘POS’)]…Both revenue processes…are outdated and markedly below industry best practices.”

• “The current processes are time-consuming and leave far too much room for inaccurate reporting due to simple human error. What’s more, in the case of event revenues being recorded only once a month, it is difficult to accurately track sales on a daily or weekly basis.”

• “Technology exists that allows all information from a previous day’s POS usage to be automatically uploaded to master financial systems.”

• “All F&B revenues should be inputted into a POS system that is integrated with Tyler. This
integration does not currently exist or has not been implemented.”

• “Cost of Goods Sold (‘COGS’) are being recorded in various ways, none of which are up to industry standards. Properly calculating true COGS is critical for cost management.”

The DavisFarr¹ Independent Audit of The District‘s 2023 Financial Statements²: “We were engaged to audit the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Incline Village General Improvement District (District), as of and for the year June 30, 2023, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents…Because of the significance of the matters described in the Basis for Disclaimer of Opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements…We were unable to complete our analytical review procedures of revenues and expenses, we were unable to obtain sufficient audit evidence supporting other amounts in the financial statements, and we were unable to evaluate the results of the ongoing forensic due diligence investigation to determine if any additional audit procedures are necessary. As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in the accompanying financial statements…(Accordingly,) we do not express an opinion on the accompanying financial statements.”

Given NRS 354.624(1) instructs that “each local government shall provide for an annual audit of all of its financial statements,” NRS 354.624(4) instructs that “each annual audit must…be a financial audit conducted in accordance with generally accepted auditing standards in the United States (‘GAAS’), including findings on compliance with statutes and regulations and an expression of opinion on the financial statements,” and here the District’s auditor expresses no such “opinion on the (District’s 2023) financial statements,” “the board of trustees of the district is not complying with the provisions of…chapter (NRS 354) or with any other law.” And why is this noteworthy? Because NRS 318.515 also instructs that the County Board may also adopt an ordinance, file a petition, or determine by resolution one or more of the matters outlined above, where “the board of trustees of (a) district is not complying with the provisions of this chapter or with any other law.”

Conclusion: So how many experts does it take for the District and the public to conclude IVGID is currently not and in the past has not been properly managed?

1. The District’s C.P.A. auditor.
2. See page 6.