Audit Report on Department of Parks and Recreation Oversight of Capital Improvements by Concessionaires

Audit Report In Brief

We performed an audit on the Department of Parks and Recreation’s (Department) effectiveness in monitoring concessionaires to ensure that they comply with the capital improvement provisions of their license agreements. The Department oversees various City concessions for ice rinks, marinas, golf courses, restaurants, etc.  Under the terms of their license agreements with the Department, concessionaires are, in many instances, required to perform and pay for specific capital improvements to the facilities they operate.  At the start of Fiscal Year 2010, the Department had agreements with 90 concessionaires in which capital improvements were required.

The Department’s revenue division is responsible for monitoring concessionaires to ensure that capital improvements are completed in accordance with requirements of their agreements.  Any modifications to the capital improvement requirements of concession agreements require the approval of the Department’s Assistant Commissioner for Revenue.  If a concessionaire fails to perform required capital improvements satisfactorily, the Department may issue a Notice-to-Cure, requiring that the concessionaire comply with the provisions of its agreement, and may assess liquidated damages.  License agreements provide that concessionaires that complete the capital improvements at a cost that is lower than the minimum amount specified in their agreements must remit the difference to the Department as additional fees.

Comptroller’s Audit (No. EW03-136A dated January 2004) previously examined the Department’s oversight of concessionaire capital improvements.  That audit concluded that the Department did not effectively monitor concessionaires to ensure that they complied with the capital improvement provisions of their agreements.

Audit Findings and Conclusions

Since the publication of Comptroller’s Audit No. EW03-136A, the Department has taken several recommended steps in establishing a project management system for monitoring concessionaires to ensure that they comply with the capital improvement provisions of their agreements.  But despite these noteworthy efforts, the Department still needs to bolster its management system to make it more effective.  Thus, our current audit concluded that problems continue to beset the Department’s management system that precludes it from adequately monitoring concessionaires to ensure that they comply with the capital improvement provisions of their agreements.  As a result, capital improvements totaling nearly $10 million were not completed at 33 of the 54 sampled concessions.  Moreover, the failure to undertake capital improvements resulted in a loss to the City of at least $37,531 in concessionaire fees from improvements that would have generated revenue.

Furthermore, the Department did not assess liquidated damages in 11 cases totaling $640,100 when capital improvements were not completed on time, as permitted under the agreements. The audit also noted that although the Department receives invoices and canceled checks from concessionaires to substantiate capital improvement work performed, the Department does not always adequately review the documentation submitted.  Finally, we found poor conditions at 15 of the 54 concessions that require correction.

Audit Recommendations

This report makes a total of 12 recommendations.  The major recommendations are that the Department should:

• Strengthen the project management system for monitoring the progress of concessionaires in completing required capital improvements.

• Issue Notices-to-Cure to concessionaires who have not completed the capital improvements required by their agreements.

• Conduct routine inspections and prepare inspection reports that provide sufficient information about the status of required capital improvement work.

• Ensure that concessionaires submit complete documentation needed to determine whether claimed capital improvement work was actually performed.

• Assess liquidated damages when concessionaires fail to complete capital improvements in accordance with their agreements.  Determine whether liquidated damages totaling $640,100 should be assessed for the 11 cases noted in this report.

• Ensure that all repair and maintenance work be excluded from license agreement provisions that require concessionaires to expend funds for capital improvements.

• Issue Notices-to-Cure requiring that the concessionaires correct the conditions noted in this report.