Audit Report on the Compliance of Alley Pond Golf Center, Inc., with Its License Agreement and Payment of Fees Due

AUDIT REPORT IN BRIEF

On September 14, 1994, the City of New York’s Department of Parks and Recreation (Parks) and Orient Associates International, Inc., signed a 12-year license agreement to operate, maintain, and manage the Alley Pond driving range and miniature golf course at 232-01 Northern Boulevard in Queens. The agreement was subsequently assigned to the Family Golf Center, Inc., on December 4, 1996, and then to Spring Rock Golf Center, Inc., on February 28, 2001, which incorporated Alley Pond as a separate entity to manage and operate the concession.

The agreement requires Alley Pond to pay the City, the greater of either a $1 million minimum annual fee or 45 percent of its gross receipts up to $2 million and 50 percent of gross receipts exceeding $2 million. Gross receipts from pro-shop merchandise sales are to be calculated separately and reported at 11.25 percent of the total received. Alley Pond is also required to pay the City a fixed fee of $59,560 for 2005 and $62,538 for 2006 for revenue derived from independent golf lesson instructors. In addition, Alley Pond is required to carry a $1 million general liability insurance policy that names the City as an additional insured; maintain a $250,000 security deposit with the City; and pay all required utility charges.

For operating years 2005 and 2006, Alley Pond reported total gross receipts of $2,491,056 and $2,408,352 and paid the City $1,059,560 and $1,062,538, respectively, for license fees. Since April 1, 2007, Alley Pond no longer manages or operates the facility, as a result of Parks’s decision to select another concessionaire to manage and operate the facility.

The audit determined whether Alley Pond Golf Center, Inc., (Alley Pond) properly calculated gross receipts and license fees due the City, and paid these license fees on time; and complied with other major requirements of its license agreement (i.e., security deposit, insurance, utility charges).

Audit Findings and Conclusions

Alley Pond generally adhered to the provisions of its lease agreement with the City and had an adequate system of internal controls over its collection and reporting of gross receipts. In addition, Alley Pond maintained the required property and liability insurance, paid the required utility charges, and contributed $250,000 as security deposit. Alley Pond also paid the required $1 million minimum fee on time. Alley Pond properly calculated the amount of license fees due the City for 2006; however, it did not properly calculate the total amount of license fees due the City for operating year 2005.

Specifically, Alley Pond owes the City an additional $13,016 in fees and penalties. The license agreement requires Alley Pond to pay annually the greater of a $1 million fee or a percentage of gross receipts derived from concession operations. For operating year 2005, the percentage of gross receipts exceeded the $1 million minimum fee by $10,579. Moreover, we calculated that Alley Pond owes the City $2,437 in penalties for failing to make the required outstanding payment on time. Therefore, the total amount due the City is $13,016 (i.e., $10,579 plus $2,437).

Finally, although Parks is responsible for administering the Alley Pond agreement, it did not register the agreement and subsequent assignments with the Comptroller’s Office as required by City regulations. Since the assignments involved a change in ownership, Parks should have submitted the assignments to the Comptroller’s Office for registration when each assignment was promulgated to provide for an independent assessment of the golf centers change of management, thereby also providing accountability for the City’s responsibilities as they relate to concession agreements.

Audit Recommendations

We recommend that:

• Alley Pond pay the City $13,016 in additional fees and penalties.

• Parks ensure that Alley Pond pays the City $13,016 in additional license fees and penalties. If Alley Pond fails to make payment, Parks should use a portion of Alley Pond’s security deposit to satisfy the amount due.

• Parks should ensure that all agreements and related assignments are submitted to the Comptroller’s Office for registration.