Audit Report on The Compliance of First Tee of Metropolitan New York, Inc., With Its License Agreement And Payment of Fees Due

AUDIT REPORT IN BRIEF

We performed an audit of the license agreement between the Department of Parks and Recreation (Department) and First Tee of Metropolitan New York, Inc., (First Tee) to operate and maintain the Mosholu Golf Course and associated facilities (i.e., driving range, snack bar, pro-shop) in Van Cortlandt Park, the Bronx. First Tee operates as the local chapter of a non-profit organization dedicated to providing young people with free golf instruction, developmental and educational programs.

According to the license agreement, First Tee is required to pay the City the greater of a minimum annual fee or an annual percentage of gross receipts. In addition, the agreement required First Tee to reconfigure and make temporary improvements to the golf course after portions of the concession premises were selected by the City’s Department of Environmental Protection and the Department as the site of a new water treatment plant. Moreover, the agreement stipulates that the City will reimburse First Tee quarterly for the revenue that would be lost as a result of disruptions caused by the treatment plant’s construction.

The audit determined whether First Tee properly calculated gross receipts and license fees due the City, and paid these license fees on time; complied with requirements for obtaining reimbursements for undertaking temporary improvements and for recovering lost revenue; and complied with other major requirements of its license agreement (i.e., security deposit, insurance, submission of required reports).

For calendar year 2006, First Tee reported receiving $537,482 in gross receipts and surcharges and paid the minimum required $140,000 in fees.

Audit Findings and Conclusions

We concluded that the amount of gross receipts that First Tee reported to the Department for calendar year 2006—$537,482—was not accurately reported. First Tee should have reported an additional $18,704 in gross receipts from program fees. Furthermore, an additional $21,245 in receipts is questionable because they lacked adequate supporting documentation to qualify as sponsorships, which would have permitted their exclusion from gross receipts.

Nevertheless, the additional receipts would not have resulted in the $140,000 minimum annual fee threshold being exceeded and would not have affected the $52,111 in surcharges paid by First Tee to the Department. However, the additional receipts do affect the reimbursements that First Tee received for lost revenue.

First Tee improperly calculated the amount of revenue that was lost as a result of disruptions caused by construction of the water treatment plant. First Tee understated its excess gross revenue and was overpaid $157,556 in reimbursements for lost revenue in calendar year 2006. Moreover, given that First Tee did not provide documentation to substantiate an additional $21,245 in revenue, First Tee may actually have been overpaid $178,801 in reimbursements. Lastly, First Tee did not deposit in a required interest bearing account additional reimbursements it received for making temporary improvements to the golf course. Consequently, the City was not credited with up to $53,115 in interest revenue.

First Tee generally complied with license agreement requirements pertaining to paying utility bills on time, submitting the required security deposit, maintaining proper insurance coverage, submitting on time a report of rounds of golf played and a statement of gross receipts.

However, we identified internal control weaknesses in the manner in which First Tee recorded the $537,482 in revenue that was reported to the Department. Moreover, First Tee did not have the required insurance endorsements, did not submit on time the required income and expense statement or financial statements with a summary comparing actual gross receipts with the receipts that it anticipated as a result of disruptions from the treatment plant’s construction.

Audit Recommendations

We make a total of 13 recommendations as follows:

First Tee should:

• Obtain prior Department approval for all sponsorship agreements that are being used for charitable purposes.

• Include all revenue from programs fees when reporting gross receipts.

• Credit the City up to an additional $178,801 for excess gross receipts earned during operating year 2006.

• Calculate excess gross receipts by using modified projected gross receipts, as required by the license agreement.

• Submit quarterly and annual reports to the Department as required.

• Immediately transfer all remaining funds and future advances to the designated interest bearing account.

• Maintain sufficient internal controls so that revenue figures from the cash register Z-tapes are accurately recorded in the daily spreadsheets and reported to the Department.

• Include in monthly revenue reports to the Department all locker rental receipts in the months earned.

• Maintain sufficient internal controls so that all green-fee-tag receipts are properly collected and revenue is adequately reconciled with cash register Z-tapes.

• Ensure that the City of New York and the Department are included in the policies as sole or additional insured parties and ensure that all policies contain the proper endorsements.

• Submit to the Department income and expense reports within the required 60 days.

The Department should:

• Ensure that First Tee complies with the terms of the license agreement.

• Deduct up to $53,115 from future advances or reimbursements to First Tee, and ensure that First Tee deposits all funds in an interest bearing account.