Audit Report of the Permit Fees Due From Urban Space Holdings, Inc., and Compliance with Certain Provisions of Its City Permit

Executive Summary

Urban Space Holdings, Inc. (Urban), operates an annual holiday market in Union Square Park in Manhattan (the Market) pursuant to a permit issued by the New York City Department of Parks and Recreation (Parks).  The objective of the audit was to determine whether Urban accurately reported its gross receipts, properly calculated the permit fees due the City, paid those permit fees timely and complied with other financial and operational terms of its permit with Parks.

In October 2010, the City of New York (the City) through Parks issued a five-year permit to Urban that allowed Urban to install, operate and manage an outdoor holiday market at Union Square Park in Manhattan.  In 2015, Parks issued a new five-year permit to Urban with the same terms as the earlier permit, except that the fee schedule was increased in the 2015 permit. In accordance with both its 2010 and 2015 permits, Urban is required to compensate the City in the amount of the higher of either the minimum required seasonal fee or 50 percent of the seasonal gross receipts.  For Seasons 2014 and 2015, Urban paid 50 percent of its gross receipts to the City in the amount of $1,462,254 and $1,501,957, respectively, in fees from its operations at the Market.  In addition, Urban is required to comply with other provisions of its permit, which governs the financial and operations practices.

Audit Findings and Conclusions

Our audit found that Urban was generally in compliance with the requirements of its permit, including the requirement that it maintain adequate insurance and that it make required security deposits.  However, we also found that Urban did not comply with certain permit provisions.  Specifically, we found that Urban failed to submit its certified statement of gross receipts to Parks within the required timeframes.  We also found some internal control deficiencies in Urban’s financial and operational practices.  Most notably, Urban did not consistently deposit its gross receipts into the Market’s dedicated account and did not modify the vendors’ contracts to reflect the actual payment amounts due.  In addition, we found irregularities with Urban’s accounting for vendor rentals, including that it did not report all fees collected and that its submission of required information to Parks were incomplete.  Finally, we found that Parks’ oversight of the Market needs to be improved to ensure that Urban fulfills all of its obligations under its permit.

Audit Recommendations

To address these issues, we make eight recommendations to Urban and five recommendations to Parks.

Our recommendations to Urban include that it should:

• Submit all required financial reports to Parks on time.
• Transfer funds collected from the operation of the Market to the dedicated and separate bank account for increased accountability and transparency.  Also, all funds that do not belong in the dedicated Market account should be transferred to other appropriate accounts.
• Ensure all contracts are updated to reflect accurate rental and placement fees charged and paid by participating vendors to enhance transparency and accountability.
• Immediately remit to Parks any fees and interest due including $462 for underreported placement fees received and determine the value of the 40 trees and calculate the corresponding fee.
• Ensure all gross receipts are reported accurately and consistently between its accounts receivable ledger and its certified statement of gross receipts.
• Ensure that the proposed vendor list is submitted to Parks for approval 30 days prior to the commencement of the Market, and that it contains all the required information including vendor booth sizes and fees payable to Urban.

We also recommend that Parks should:

• Ensure that Urban implements the recommendations in this report.
• Include a checklist in its inspection reports that addresses all vendor and booth-size changes subsequent to the approved vendor list.  The check list should include a notation of whether the vendors are displaying the required price lists and DOHMH permits.
• Compare its inspection reports to the approved vendor lists to ensure all last-minute vendor changes are updated on the approved lists.
• Reconcile Urban’s certified statement of gross receipts to an updated approved vendor list which should be included in its Market lease ledger.
• Consider exercising contract options 2 or 3 for the upcoming seasons in order to maximize revenue in the City’s best interest.

Agency Responses

In Urban’s response, it agreed with seven of the eight recommendations and stated “Urban Space endeavors to have a PERFECT record and will do its best to achieve this and to act on the recommendations made by the Auditor.”  (Emphasis in original.) Urban did not address recommendation #8.
Parks agreed with recommendations #1, #2 and #3. Parks did not agree with recommendation #4 stating that their ledger is not set up to include all the vendors.  With regards to recommendation #5, Parks stated that revenue cannot be the sole deciding factor when it decides which option is selected.  Parks officials stated that they “are mindful that a potential expansion of the market would have impacts on the community and any decisions about selecting one of these options will require additional consideration and consultation with elected officials, the Community Board, and the appropriate stakeholders.”