Philip Newman is a partner and national leader of the private club industry at RSM US LLP. He has more than 30 years of experience in public accounting, predominantly serving the private club industry, through over 350 private clubs across the US. Originally from Northern Ireland and now based in Naples, FL, Phil has “seen it all” and at Golf Property Analysts we’ve had the privilege of working with Phil and the RSM team on numerous occasions assisting our mutual clients. He is singularly focused on consulting clients in the private club industry, drawing on his many years of experience serving country and city clubs, hotels and resorts. As an audit partner with an industry-first perspective, he provides operational consulting services for clubs specializing in issues surrounding audit and tax, internal controls, strategic planning, benchmarking studies, industry trends, and governance. He leverages his deep knowledge of the industry to advise club leadership on running a successful business.
I had the chance to sit down and talk with Phil about private club finances and learned a bunch about what accountants can do for clubs. RSM provides not only typical tax accounting services to clubs, but also specialized services such as benchmarking studies, turnover consulting, operational analysis, construction cost audits, IT system analysis and cyber security, to name a few. They also do audits, typically designed to ensure that the club’s financial statements are “materially correct in accordance with generally accepted accounting principles (GAAP)”.
Among the things I learned that audits are NOT primarily designed for is fraud detection. Newman and RSM do, however advise clubs through anti-fraud training for club leadership and management alike that some clubs specifically retain them for. He notes that extended tenure of board members can be a problem and provided examples of situations where the club president’s account is long past due or his daughter’s wedding costs were written off. He asks clubs if there is an audit committee, which is made up of those who agree to recuse themselves from any other club committees. The Audit Committee can serve as a point of contact and things like related party transactions must be disclosed. Newman says sometimes board members or club presidents pressure the GM into using friends as vendors. He suggests that a club’s process for approving invoices and vendors be reviewed and that employee scheduling and other procedures be required to meet an “ethics test”. While he indicates most fraud is at the staff level, board level issues do occur and can result in the club entering into bad business relationships, or worse.
While not often thought about, Newman noted a study by the Association of Certified Fraud Examiners (ACFE) consistently shows that 5% of revenues “goes out the back door”. At a club doing $10 million in revenues, that can be $500,000, and nobody may know about it. While often staff related, it’s not uncommon for members, even club leaders to join the party.
When I asked Newman about the biggest mistakes clubs make, he noted insufficient dues increases, using capital funds to cover operating shortfalls and not investing in a timely manner to preserve and enhance amenities. He characterized refundable equity as “the cardinal sin”, which rewards members for leaving the club and starves the club of capital funding. Newman said that “COVID solved the issue for many clubs as waiting lists to get out were replaced with waiting lists to get in. Other than that, some clubs have eliminated it on a going forward basis while others have implemented assessments that members could pay by forfeiting their refund rights or some portion of them.” He recommends slashing refundability for new members but warns that in a post-COVID world if the refund is still there, the same issue experienced in the past by many clubs is waiting to happen again. Additionally, he noted that club members are younger and use the club more, meaning that clubs have to re-evaluate their capacity for membership. Tee times have become too precious.
Accounting-wise, Newman noted that the Uniform System of Financial Reporting for Clubs (USFRC) is used to some degree by about 75% of clubs, but not being a part of GAAP, there’s no mechanism to force its implementation. He wishes it would be universal as it would make benchmarking much easier.
I asked Newman about how often his club clients “cut corners” and ignore their advice. He said: “We are very picky with our client acceptance procedures so it’s rare that clients don’t listen to us on important matters. Sometimes they do have to make tough economic decisions and that is the reason they don’t follow our advice – but rarely do they just ignore us. The COVID period was probably the hardest I’ve seen in my career in this regard. There was so much bad and incorrect advice in the marketplace about access to government funds that no doubt some clubs made bad mistakes. We have examples of clubs that for example received ERC when they clearly didn’t meet the requirements, but they followed the advice of some commission based consultancy that got created in 2020…The IRS audits have started on ERC so there will be a reckoning soon in that regard for sure.“
In many cases, clubs are substantial enterprises and many members would rather trust the board and staff and “not be bothered” with the club’s operations. It’s not uncommon for members to perceive that audits of club finances are designed to track the uses of funds and sound, ethical business practices. They’re not. That’s management’s job. Audits are only designed to monitor accounting practices and compliance with GAAP. If a club wants to establish and develop a high level of financial transparency they need to do more.