Audit Report on the Business Integrity Commission’s Administration of the Shipboard Gambling Fiduciary Accounts

AUDIT REPORT IN BRIEF

This audit determined whether the Business Integrity Commission (Commission) accurately accounts for the revenues and expenses of its Shipboard Gambling fiduciary accounts and ensures that all funds are used in accordance with the fiduciary agreement.

Fiduciary accounts are used to record financial resources held and administered in trust by the City of New York. The principal and income of these accounts is intended to benefit individuals, private organizations, or other non-City government entities. The Commission is responsible for administering two fiduciary accounts that were established to receive deposits from private parties interested in operating shipboard gambling businesses in the City, or in providing goods and services to those businesses. The accounts, were established in January 1998 by the Law Department in accordance with Local Law 57—a 1997 amendment to Title 20 of the Administrative Code of the City of New York.

The Law Department is the custodian of the two accounts, and it deposits and disburses account funds when notified by the Commission or (in the past) its predecessors. For Fiscal Year 2004, the Law Department reported a balance of $627,580 in the Business and Employees account, and a balance of $124,301 in the Vendor License account. According to Commission officials, shipboard gambling has been inactive since Fiscal Year 2002.

Audit Findings and Conclusions

The Commission generally expended funds from both fiduciary accounts in accordance with the fiduciary agreement. However, the Commission did not adequately account for or reconcile the two accounts in a timely fashion. Moreover, the Commission has not issued refunds to entities whose investigations are complete, and who deposited into the account funds greater than the City’s investigative costs.

Our reconciliation of the two accounts disclosed:

• The City was not reimbursed for $656,741 for the cost of investigations: $549,789 from the Business and Employees account; and $106,951 from the Vendor License account.

• Only $629,239 in the two accounts is available to reimburse the City. The Business and Employees Account has $627,580 on deposit. Of this amount $528,642 is available to reimburse the City and the remaining $98,938 is to be returned to applicants whose investigations are complete and who deposited into the account funds greater than the City’s investigative costs. Similarly, the Vendor Account has $124,301 on deposit; $100,597 is available to reimburse the City, $23,669 is to be returned to the applicants.

• Sufficient funds were not collected to cover investigations in connection with 18 applicants. For three other applicants refunds were issued before the City received appropriate reimbursement of the investigative costs incurred. Consequently, funds on account for these applicants fall short of the investigative costs incurred by $27,502.

Audit Recommendations

To address these issues, we recommended that the Commission, in conjunction with the Law Department should:

• Transfer the $629,239 balance in the fiduciary accounts to the City’s General Fund.

• Attempt to recover the $27,502 due the City from applicants who deposited insufficient funds to cover the cost of investigations conducted by the City.

• Reconcile both fiduciary accounts. Any remaining balance in the accounts, after deducting expenses due the City, should be returned to the applicants.

The Commission’s predecessors were the Gambling Control Commission, established in 1997 to regulate shipboard gambling, and the Trade Waste Commission established in 2000. In July 2002, the Gambling Control Commission was consolidated into the Organized Crime Control Commission and was renamed the Business Integrity Commission.