Audit Report on the Compliance of Dyckman Marine Group, Inc., With Its License Agreement and Its Payment of License Fees Due the City

EXECUTIVE SUMMARY

On December 23, 1998, the City of New York entered into a 15-year license agreement, through the Department of Parks and Recreation (Parks), with Dyckman Marine Group, Inc. (Dyckman), to operate, maintain, and manage the Dyckman Marina (marina) on the Hudson River at the western end of Dyckman Street in Manhattan. Dyckman is responsible for the rental of moorings and slips, and the operation of the Tubby Hook Café, a restaurant at the marina. The agreement also requires that Dyckman operate a boat supply shop, a sailing school, and a boat club for use by the public, once it completes the capital improvements called for by the agreement to accommodate these facilities.

Under the agreement, Dyckman is required to pay the City the greater of a minimum annual fee that escalates each year from $18,000 in year-one to $35,639 for the final year of the agreement, or 10 percent of its gross receipts. Gross receipts are defined as all funds received by the licensee (without deduction or set-off of any kind) from the sale of food and beverages, use of the marina, the licensing of the premises for private functions, or related services of any kind. For the period, January 1, 2001, through December 31, 2001, Dyckman reported gross receipts totaling $283,512 and paid $28,351 in license fees to the City.

The audit determined whether Dyckman: maintained adequate internal controls over the recording and reporting of gross receipts; reported its total gross receipts properly, and calculated and paid all required license fees to Parks on time; and complied with certain non-revenue-related requirements of its license agreement.

Dyckman charged slip and mooring rental fees in accordance with Parks’s approved rates, paid license fees on time, paid the design review fee, remitted the required security deposit to the City, and maintained workers’ compensation and general liability insurance. As part of the improvements completed, Dyckman has installed new fencing around the marina, built a restaurant that contains restrooms, and removed debris from the property, as required by the agreement.

However, Dyckman does not have adequate internal controls over its gross receipts. In addition, Dyckman did not report to Parks an estimated $599,114—68 percent of its gross receipts. Consequently, Dyckman owes the City additional licensing fees totaling $59,911. In addition, Dyckman has unpaid water bills totaling $6,558 as of April 8, 2002. Dyckman also violated New York State liquor laws by not purchasing alcohol from authorized wholesale distributors and by not maintaining records of business transactions related to purchases and sales of alcoholic beverages.

Our physical inspection of the marina found that sections of the marina’s bulkhead, decking, and retaining walls were in an advanced state of deterioration. After we notified Parks officials of our findings, they conducted their own inspection and immediately issued a Notice to Cure requiring that Dyckman make the necessary repairs. Finally, Dyckman did not obtain a permit for moving silt away from the marina—a serious violation of environmental regulations.

Consequently, we recommend that Dyckman:

• Pay the City $59,911 in additional license fees owed.
• Pay the Department of Environmental Protection $6,558 for water charges.

Given the audit findings in this report, it is obvious that Parks must consider terminating its agreement with Dyckman if Parks believes that Dyckman is either unwilling or unable to keep books and records and account for all revenue, as required by the agreement. At a minimum, Dyckman’s failure to report all its revenues on its Gross Receipts Statements, its failure to maintain the necessary supporting documentation, and its lack of internal control issues must be addressed. Accordingly, if Parks decides not to terminate its agreement with Dyckman, Parks should require that Dyckman:

• Pay the City $59,911 in additional license fees.
• Pay the Department of Environmental Protection $6,558 for water charges.
• Immediately install a point-of-sale system.
• Maintain records of all boat space rentals and services (e.g., boat agreements, invoices).
• Use pre-numbered contracts to document boat space rentals.
• Report all gross revenue to the City including the fair market value of docking fees from all barter agreements.
• Obtain written approval from Parks for all sublicense agreements.
• Comply with the New York State liquor law by purchasing alcohol only from authorized wholesale distributors and by maintaining adequate records of liquor purchases and sales.
• Immediately repair the floating docks and walkways.
• Obtain the required permits for silt relocation.

If Parks decides not to terminate Dyckman’s agreement, we recommend that it periodically audit Dyckman and inspect its facilities to ensure that it is adhering to the terms of the agreement.

The matters covered in this report were discussed with Dyckman and Parks officials during and at the conclusion of this audit. A preliminary draft report was sent to Dyckman and Parks officials and discussed at an exit conference held on May 24, 2002. On May 30, 2002, we submitted a draft report to Dyckman and Parks with a request for comments.Written responses were received from Parks on June 10, 2002, and from Dyckman on June 14, 2002.

Dyckman’s President stated in his response that he disagreed with our audit estimates of underreported gross receipts, but agreed to comply with the audit’s recommendations. In addition, the President stated that Dyckman will pay the Department of Environmental Protection $6,558 to satisfy the outstanding water bill.

With regard to silt relocation, the President stated: "One thing we find very troubling is the accusation that we removed or moved silt away from the marina. We never did anything of that sort."

Regarding hazardous conditions at the marina, the President stated: "The floating docks and finger docks that appeared to be in a further deteriorated condition since the September 7, 2001, visit were in the process of being renovated in order to bring them up to standard by the summer season which for us began on May 1, 2002. They are almost completed for the season."

We do not accept the claim of Dyckman’s President that silt was not "removed or moved" from the marina. Dyckman’s general ledger contained two payments totaling $1,650 for "prop washing" at the start of the 2000 and 2001 seasons. At our May 24, 2002, exit conference, Dyckman’s President acknowledged that prop washing is commonly done at marinas to move silt in order to facilitate the movement of boats. Clearly, Dyckman’s President is aware of the seriousness of his actions and has decided to claim that they never occurred.

In its response, Parks stated that it has elected to allow Dyckman to continue its operation of the marina and restaurant if Dyckman complies with the Notice To Cure (NTC) issued to Dyckman on June 10, 2002. Specifically, the NTC requires that Dyckman pay the audit assessment of $59,911 under a six (6) month payment plan, contact the Department of Environmental Protection to settle Dyckman’s past due water charges in the amount of $6,558, implement the internal control recommendations, submit a formal sublicense agreement between Dyckman and Conover Canvas, Inc., to Parks for approval, take immediate action to properly account for all liquor purchases and sales, repair all damaged floating docks and walkways at the marina, and obtain the required permits for any future silt relocation projects.