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Tuesday, February 9, 2021
Auditor: Stadium Authority has substantial doubt about its ability to continue as a going concern
By Hawaii State Auditor @ 3:28 AM :: 1589 Views :: Development, Higher Education, Tourism

FINANCIAL AUDIT OF THE STADIUM AUTHORITY STATE OF HAWAII

Fiscal Year Ended June 30, 2020

Prepared for Hawaii State Auditor by N&K CPAs Inc Dec 8, 2020

Released February, 2021

From Audit Summary:

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, the Authority reported total revenues of $6.9 million and total expenses of $13.5 million, resulting in a net loss of $6.6 million. Revenues consisted of (1) $3.7 million from rentals from attractions, (2) $1.5 million from food and beverage concessionaire commissions, (3) $900,000 in parking fees, and (4) $800,000 in advertising and other revenues. The Authority’s net loss was partially offset by $9 million in capital contributions, which represents the portion of Aloha Stadium capital improvement costs that were paid by the State of Hawai‘i….

Going Concern Consideration

THE REPORT NOTES that due to the impact of the COVID-19 pandemic and the related emergency proclamations and emergency orders issued by the Governor, the Authority has substantial doubt about its ability to continue as a going concern for the 12-month period following the date of the issuance of the financial statements. The Authority has implemented cost saving measures in response to the conditions that have arisen due to COVID-19.... (p1-2)

From Audit Report:

Emphasis-of-Matter Regarding Going Concern 

… As discussed in Note O to the financial statements, due to the impact of the COVID-19 pandemic, management believes that there is substantial doubt about the Authority’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note O. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. … (p6)

Net position increased by $2,392,000 or 2.8% from the previous fiscal year. The increase is due primarily to current year's operating loss of $6,762,000 offset by current year’s capital contributions of $9,046,000.

By far, the largest portion of the Authority's net position reflects its net investment in capital assets of $94,562,000. The Authority uses these capital assets to provide services to the customers of Aloha Stadium; consequently, these assets are not available for future spending. An additional portion of the Authority's net position amounting to $61,000 represents resources that are restricted for the maintenance of the field in accordance with an advertising agreement. The remaining portion of the Authority's net position is unrestricted and reflects a deficit balance of $7,929,000, due primarily to the Authority's allocated share of the State's net pension and net other postemployment benefits liabilities, which collectively totaled $12,986,000. … (p10)

As discussed in Note O, due to the spread of the COVID-19 disease, state and county emergency proclamations were issued starting in March 2020 to respond to and slow the spread of the virus in the State. These emergency health and safety measures have effectively closed Aloha Stadium to the general public and have severely limited all of the revenue generating activities conducted at Aloha Stadium as of June 30, 2020. Management believes that the disruption caused by COVID-19 is temporary, and therefore, an impairment loss was not recorded for the fiscal year ended June 30, 2020…. (p21)

NOTE O - GOING CONCERN CONSIDERATIONS

…In complying with emergency proclamations and emergency orders issued by the Governor of the State and the Mayor of the City and County of Honolulu, respectively, the Authority’s ability to host crowd-attended events (with the exception of drive-through and swap meet events) has been severely limited, which has adversely impacted the Authority’s ability to generate revenues. While the disruption caused by COVID-19 is expected to be temporary, there is uncertainty around the duration and severity of this pandemic. However, preliminary budget projections prepared by management have placed the Authority in a cash deficit position by the end of fiscal year 2021. Management believes that these conditions, when considered in the aggregate, have raised substantial doubt about the Authority’s ability to continue as a going concern for the 12-month period following the date of the issuance of the financial statements.

Management is mindful to proceed cautiously in such an unprecedented environment and have incorporated the following cost saving measures in response to the conditions that have arisen as a result of COVID-19:

Cancellation of event-related contracted services 

Reductions to the frequency and scope of existing contracted services 

Internal operating adjustments, such as:

o Reduction and/or elimination of time charges by part-time intermittent workers

o Reduction in operating hours of air conditioning systems

o Reduction in procurement of materials and supplies towards the upkeep and maintenance of the facility

Management has also submitted a request to the State for an emergency appropriation of cash that, if approved, would be deposited into the Authority’s special fund to provide financial support through fiscal year 2021, with any residual amounts providing working capital for fiscal year 2022. (p40)

  *   *   *   *   *

We did identify certain deficiencies in internal control, described in the accompanying schedule of findings as item 2020-001 that we consider to be a material weakness. …

2020-001 Improve Accounting for Construction-in-Progress

Criteria: Costs related to the acquisition or construction of an asset with an estimated useful live over one year, or costs that either extends the useful life of an asset or expands the capacity of an asset should be capitalized in accordance with accounting principles generally accepted in the United States of America.

Condition: The Authority did not record approximately $1,153,000 in additions to construction-in progress as of June 30, 2020. Approximately $516,000 were costs incurred as of June 30, 2020 that were paid subsequent to the end of the fiscal year. The remaining amount of approximately $637,000 were costs incurred as of June 30, 2020 that were withheld from the contractor until the substantial completion of the construction contract, that is, retentions payable.

Cause: The Public Works Division of the State’s Department of Accounting and General Services administers construction projects for the Authority and the Authority relies on cash basis information from the Public Works Division to account for construction-in progress. However, the Authority did not evaluate cost information that was available subsequent to June 30, 2020 to determine the completeness of additions to construction-in-progress recorded as of June 30, 2020.

Effect: As of June 30, 2020, the Authority understated capital assets by approximately $1,153,000 and understated capital contributions by approximately $1,153,000 for the fiscal year ended June 30, 2020. The Authority corrected this misstatement in the current fiscal year.

Identification as a Repeat Finding, if applicable: This is a repeat finding from the previous year as Finding No. 2019-001. …

read … FULL REPORT

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