Audit Report on NYC & Company, Inc.’s Compliance with Its City Consulting, Marketing, and Licensing Contract

Audit Report In Brief

On February 13, 2007, NYC & Company, Inc. (NYCC), a not-for-profit corporation, entered into a contract with the City of New York for the provision of consulting, marketing, and licensing services. The contract requires NYCC to undertake a number of activities designed to enhance the City’s ability to maintain and develop the City as a tourism destination, convention site, and location for big events, and to generate revenue and promote economic development through the use of municipally-owned or controlled marketing and licensing resources. In consideration for the performance of the scope of services, for Fiscal Year 2009, the City paid NYCC $19,556,927 in contract funds. NYCC is also permitted to conduct activities that would leverage public and private sector member dollars to supplement funding for existing programs. The contract, which will terminate on , is monitored by the Department of Small Business Services (DSBS), and the scope of services performed is subject to the review and approval of the Deputy Mayor for Economic Development.

The audit determined whether NYCC accurately reported its revenue and expenses to the City, properly calculated and paid the appropriate fees due the City on time, and complied with other requirements of its contract.

Audit Findings and Conclusions

NYCC did not include at least $3,139,212 in its calculation of the marketing and licensing fees it reported to the City. As a result, it owes the City at least $1,771,192 in additional marketing and licensing fees as detailed in the Appendix. Specifically, our audit found that NYCC did not include $1,602,017 in net sales of marketing and sponsorship agreements and $1,537,195 in net advertising revenue it received from a sub-license agreement in connection with the City’s banner program. Both amounts were classified as ‘Other Funds’ and, therefore, excluded from NYCC’s calculation of its payment to the City for Fiscal Year 2009. In addition, as discussed in the scope limitation section of this report, we were not able to obtain the supporting documentation that would allow us to ascertain whether $10,133,975 in revenue, included under ‘Other Funds,’ was accurately reported to the City and whether $16,378,970 in expenses, also included under ‘Other Funds,’ were appropriate and accurately reported to the City. As a result, we were not able to determine whether additional fees may be due the City.

Furthermore, as discussed in the Other Issues section of this report, we noted that NYCC did not report to the City the activities of the in-kind media resources it received in connection with its contract. We also found that NYCC did not have adequate disclosure of its methodology for allocating the revenue and expenses of its programs in the financial reports it submits to the City. Nevertheless, our review found that NYCC complied with other requirements of its contract (i.e., submitted its reports to the City in a timely manner and maintained the required insurance).

Audit Recommendations

We recommend that NYCC:

• Pay the City $1,771,192 in additional fees due in connection with its marketing activities.
• Include all marketing activity related revenue in the calculation of marketing and licensing fees due the City as required in Section 2.02 of the contract.
• Ensure that only salary expenses directly related to the marketing activities are allocated to such activity.
• Ensure that marketing and licensing project budgets are submitted, reviewed, and approved by the Deputy Mayor as required by the agreement.

We recommend that DSBS or the Mayor’s Office:

• Ensure that NYCC pay the $1,771,192 in additional marketing fees recommended in this report and comply with the audit’s other recommendations.
• Ensure NYCC clearly disclose its methodology for allocating revenue and expenses among its program funds.
• Require that NYCC reports to the City the in-kind media contribution activities and its basis for valuation.
• Require that NYCC provides adequate information and disclosure regarding the classification of its revenue and expenses in the financial reports it submits to the City.
• Ensure that the requirements for recommendations 6 through 8 are clearly articulated in future contract negotiations.

Agency Responses

In NYCC’s response received on June 16, 2011, NYCC officials generally disagreed with the audit report’s findings and recommendations and stated that ‘While we appreciate the work of the audit team, we do not as indicated concur with the Draft Audit’s findings, conclusions and recommendations.’ DSBS officials also stated that ‘We must respectfully disagree with the draft audit’s findings, conclusions and recommendations.’