Audit Report On The Compliance Of Central Park Tennis Center, Inc., With Its License Agreement And Payment Of License Fees Due The City

AUDIT REPORT IN BRIEF

We performed an audit of the compliance of Central Park Tennis Center (CPT) with its license agreement with the New York City Department of Parks and Recreation (Parks) for the operation of the tennis center at Central Park. The agreement requires CPT to pay the City a minimum annual fee escalating annually to $70,834 in the final, sixth year, or 10 percent of the gross receipts derived from the operation of the tennis center, whichever is greater. The license agreement also requires CPT to spend a minimum of $120,000 on capital improvements to the facility. The license agreement expired on November 15, 2007. In the final year of the license agreement, covering the 2007 tennis season, CPT reported to Parks a total of $838,056 in gross receipts and paid Parks $84,600 in fees— $83,806 in license fees and $794 in late fees.

Audit Findings and Conclusions

CPT had significant internal control weaknesses over the financial operations of the tennis center. As a result of these weaknesses, we could not ascertain whether all of the revenue received by CPT was in fact recorded and was accurately and completely reported to Parks. Nor could we determine whether CPT paid Parks all fees due. However, CPT made capital improvements approved by Parks and maintained the required security deposit.

Based on the documentation provided, we were able to determine that CPT owes additional license fees and late charges totaling $110,347 for the audit period. In that regard, we found CPT incorrectly deducted wages paid to tennis instructors and did not report all the revenue received, based on our comparison of the amounts recorded on CPT bank statements and the amounts reported on the gross receipts statements submitted to Parks. In addition, CPT did not pay utility charges associated with the operation of the licensed premises, underreported $24,116 in taxable sales, and as a consequence underpaid its sales tax by $2,065, and did not maintain the insurance coverage required in the license agreement. CPT did not comply with and fulfill the provisions in its agreement, and Parks failed to adequately monitor CPT’s performance and enforce the terms and conditions of its agreement.

Audit Recommendations

We make 10 recommendations to CPT and 4 recommendations to Parks, including the following.

CPT should:

• Pay the City $110,347 in additional license fees and late charges for underreporting gross receipts.
• Implement a system of internal controls and keep complete and accurate records as well as books of account and data, including daily sales and receipt records that show in detail the total business transacted by CPT and the gross receipts derived therefrom.
• Issue receipts for all payments received.
• Make arrangements with Parks to pay for past water and electricity use.
• Obtain the proper insurance coverage as required by the license agreement.
• Pay $2,081 in back sales tax to New York.

Parks should:

• Issue a Notice to Cure to CPT requiring that it pay $110,347 in additional license fees and late charges for underreporting gross receipts.
• Require CPT to comply with the terms and conditions of the license agreement.
• rrange for the installation of separate electric and water meters for the licensed premises.