Audit Report on the Compliance of Concert Foods with Its Department of Parks and Recreation Contract

AUDIT REPORT IN BRIEF

Under a contract with the Department of Parks and Recreation (Parks), Concert Foods was authorized to operate a snack bar and two pushcarts at the Sheep Meadow Café (north of the Sheep Meadow in Central Park). The agreement covered the six-year period February 5, 2003–March 31, 2009. Under the terms of the agreement, Concert Foods agreed to pay Parks the higher of $105,233 or 20 percent of gross receipts for the period May 1, 2008–March 31, 2009, and to submit specified documentation to Parks to substantiate its gross receipts. For the period ending March 31, 2009, Concert Foods reported gross receipts of $637,386 and paid permit fees of $127,477 based upon reported receipts.

The permit agreement also required Concert Foods to sell only authorized items at Parks-approved prices, maintain snack bars, restrooms, and surrounding area, and perform capital improvements in each operating year. Concert Foods was also required to conform to certain non-revenue related requirements of the agreement and to return equipment to Parks or replace it upon the expiration of the agreement.

In addition to the Sheep Meadow Café, Concert Foods operated two other concessions on City-owned properties in Central Park—the Delacorte Theatre and Rumsey Playfield. This audit pertains only to Concert Foods’ financial and operating practices for the Sheep Meadow Café.

Audit Findings and Conclusions

Concert Foods failed to report gross receipts of at least $93,002 and, therefore, owes the City $20,519—$18,600 in fees and $1,919 in penalties and interest. Further, Concert Foods failed to report additional gross receipts of $46,673 that it maintained were generated at another Concert Foods concession, the Delacorte Theatre. Although we know that Concert Foods did not report all revenue earned at the Sheep Meadow Café, we could not determine the total gross receipts or the corresponding payments due the City because Concert Foods alleged it lacked sales records and Concert Foods lacked internal controls of any kind over the collecting, recording, and reporting of revenues. Given Concert Foods’ failure to report gross receipts of at least $93,002 and the utter lack of sales records and internal controls, it appears that Concert Foods may have perpetrated fraud.

Concert Foods also failed to expend $156,047 on capital improvements and make specified capital improvements and necessary repairs to the Sheep Meadow Café. During the course of our audit, Concert Foods paid Parks $31,487 toward its capital improvements requirement and Parks accepted this money in lieu of required capital improvement expenditures. Therefore, Concert Foods still owes Parks $124,560 toward its capital improvements requirement. However, Parks may not be able to collect the total $145,079 owed it—$124,560 for capital improvements and $20,519 for fees, penalties, and interest—because the Concert Foods agreement has expired, and its required security deposit was only $26,308.

The audit also revealed that Concert Foods expanded the scope of its operations and vending space, sold unauthorized items, and charged customers more than amounts approved by Parks. Further, Concert Foods did not obtain necessary permits and licenses, designate insured parties as specified, and pay all New York State and City sales tax. Concert Foods did not comply with and fulfill these contractual obligations, and Parks failed to adequately monitor Concert Foods’ performance and enforce the terms and conditions of its agreement, as required by the New York City Charter, Chapter 14, §365. In fact, the oversight by Parks was so lacking that it created an environment conducive to fraud.

Audit Recommendations

Ordinarily we would address our recommendations to Concert Foods, but its permit has expired, and it was not awarded this concession again. Therefore, we address our recommendations solely to Parks. We make four recommendations with regard to Concert Foods and 10 recommendations with regard to future snack bar concessions, including that Parks should:

• Seize Concert Foods’ security deposit of $26,308 and apply it toward the $145,079 it owed Parks for capital improvements, fees, penalties, and interest.
• Refer the collection of the remaining $118,771 owed it for capital improvements, fees, penalties, and interest to the New York City Law Department.
• Ensure that future snack bar concession agreements with fees based on gross receipts clearly stipulate that concessionaires maintain adequate systems of internal control and keep complete and accurate records as well as books of account and data, including daily sales and receipt records, which show in detail the total business transacted by the concessionaire and the gross receipts derived therefrom.
• Monitor concessionaires’ performance and enforce the terms and conditions of their agreements, as required by the New York City Charter, Chapter 14, §365.
• Issue Notices to Cure, assess liquidated damages when permissible, and follow up on concessionaires that do not comply with and fulfill agreement provisions.
• Issue Advices of Caution in the City’s VENDEX regarding concessionaires that do not comply with or fulfill agreement provisions.