Audit Report on the Compliance of Crystal Ball Group, Inc., (Terrace on the Park) with Its License Agreement and Its Payment of License Fees Due the City

AUDIT REPORT IN BRIEF

We performed an audit on the compliance of Crystal Ball Group, Inc. (Crystal Ball), with its license agreement, awarded by the Department of Parks and Recreation (Parks) for the renovation and operation of the Terrace on the Park (Terrace) restaurant and catering facility in Flushing Meadows-Corona Park, Queens. The agreement required that Crystal Ball pay the City an annual fee of nine percent of its gross receipts for the period October 1, 1998–March 31, 2000, (referred to in the contract as the "construction period"). For the period April 1, 2000–March 31, 2009, Crystal Ball is required to pay the City either a minimum annual operating fee of $2,000,000 or 20 percent of its gross receipts, whichever is greater. The annual minimum increases to $2,500,000 for the period April 1, 2009–March 31, 2020, when the agreement concludes. For the 1999, 2000, and 2001 operating years, Crystal Ball reported a total of $23,363,573 in gross receipts and paid the City $4,545,409 in fees.

Terrace generally complied with certain non-revenue requirements of its license agreement. By reviewing the insurance certificates, we verified that Terrace maintained the required insurance coverage and confirmed that the City was named as an additional insured. Furthermore, we verified that Terrace remitted the required security deposit to the City; paid its design review fee; and paid its utility bills.

However, because of weak internal controls over banquet contracts, we cannot be assured that all banquet revenue was recorded on Crystal Ball’s books and was reported to Parks, and that appropriate fees were paid. Moreover, Crystal Ball took $524,477 in improper deductions from gross receipts resulting in $100,179 in additional fees and related interest and penalties due the City. Finally, Crystal did not expend the amount required under its license agreement for capital improvements. Consequently, Crystal Ball could owe the City as much as $5,212,125

To address these issues, we recommend that Crystal Ball should:

• Issue pre-numbered banquet contracts in sequential order. In this regard, Crystal Ball should maintain copies of all contracts (whether completed or canceled) to document reasons for gaps in contract numbers.
• Retain all books and records, including banquet calendars, for six years, in accordance with the license agreement.
• Ensure that revenue is accurately reported to Parks and the appropriate fees are paid, in accordance with the license agreement.
• Ensure that all deductions from gross receipts are in accordance with the license agreement and pay the City $100,178 in additional fees and related interest and penalties for the improper deductions cited in this report.
• Make arrangements with Parks to complete the remaining capital improvements according to a specific timetable. When Parks determines that capital improvements are complete, Crystal Ball should pay the City the amount, if any, that capital improvements do not meet the minimum amounts specified in the license agreement.

Additionally, we recommend that Parks should:

• Determine whether additional capital improvements are necessary to meet the requirements of the license agreement. If it is determined that no additional improvements are required, Parks should issue a Certification of Final Completion and collect any unspent funds.
• Issue a Notice to Cure to Crystal Ball requiring that it comply with the audit’s recommendations.