Audit Report on the Compliance of Circle Line-Statue of Liberty Ferry, Inc., With Its License Agreement and Payment of Fees Due

AUDIT REPORT IN BRIEF

This audit determined whether Circle Line-Statue of Liberty Ferry, Inc., (Circle Line) accurately reported its gross receipts, properly calculated the license fees due, paid its license fees on time, and complied with certain other major non-revenue terms of the license agreement.

On December 8, 1992, the City of New York (City) through the Department of Parks and Recreation (Parks), entered into a 12-year license agreement with Circle Line to operate an excursion ferry service to Liberty Island and Ellis Island, both part of the National Park Service, and other sightseeing cruises departing from Battery Park, Manhattan.¹

Although the license agreement expired on March 31, 2004, Parks issued several short-term permits for Circle Line to continue operating at Battery Park. The last short-term permit expired on December 31, 2007. On January 1, 2008, a new concessionaire began operating ferry service between Liberty Island, Ellis Island, and Battery Park.

Under the terms of the agreement and permits, Circle Line is required to pay the City the greater of 7 1/4 percent of gross receipts or a minimum annual fee of $500,000 for operating years 2005 to 2007 (April 1, 2004, to March 31, 2007). The minimum annual fee or the percentage fee is payable on or before the 20th day of each month. A monthly 2 percent penalty is charged for amounts 15 days overdue. In addition, Circle Line is required to:

• maintain a $50,000 security deposit with the City,

• carry proper insurance coverage and name the City as an additional insured,

• submit monthly and annual gross receipts statements to Parks, and

• pay all required taxes.

During operating year 2007 (April 1, 2006, to March 31, 2007), Circle Line reported $28,479,886 in gross receipts and paid $2,064,792 in license fees.

Audit Findings and Conclusions

Circle Line generally adhered to the provisions of its agreement. Specifically, Circle Line paid its fees on time, maintained the required property and liability insurance, and contributed the $50,000 as security deposit to the City.

However, Circle Line did not pay all of its required fees to the City. Circle Line owes:

• $14,517 in percentage fees for underreported gross receipts of $200,233;

• $102,124 in percentage fees for unreported handling fees ($1.75 per ferry ticket) of $1,408,601 associated with advance purchases made through the Internet or by telephone for operating years 2005 to 2007 (April 1, 2004, to March 31, 2007);

• $432 in percentage fees for minor recording errors with a net dollar value of $5,962;

• $1,098 in percentage fees for a $15,147 deduction to gross receipts without supporting documentation; and

• $68,237 in late charges based on $118,171 in additional fees due.

Circle Line also did not submit its 2005, 2006, or 2007 certified annual gross receipts statements to Parks in a timely manner. In addition, Circle Line did not file commercial rent tax returns for tax years 2006 and 2007 and excluded the license fees paid to the City when calculating the tax due since tax year 2005. Consequently, Circle Line may owe the City $236,308 (exclusive of interest and penalties) in commercial rent tax. ²

As a result of the audit exceptions noted, Circle Line owes $422,716 in additional license fees, late charges, and commercial rent tax.

Audit Recommendations

The audit recommended that Circle Line should:

• Pay $186,408 in additional license fees and late charges to the City.

• Calculate and pay additional fees due that result from unreported handling fees for the period covering April 1, 2007, to December 31, 2007.

• Contact the Department of Finance and seek a final determination with regards to the commercial rent tax and any interest and penalties due for tax years 2005 to 2007.

Parks should:

• Ensure that Circle Line pays the $186,408 in additional license fees and late charges, and any additional fees that result from unreported handling fees covering the period April 1, 2007, to December 31, 2007. If the outstanding balance is not paid, Parks should use Circle Line’s $50,000 security deposit and seek legal action to recoup the difference.

• Coordinate efforts with the Department of Finance to pursue collection of commercial rent tax and any additional interest and penalties that Finance may assess.