Audit Report on the Compliance of Kissena Golf LLC with Its License Agreement for the Kissena Park Golf Course

Kissena Golf LLC (Kissena Golf) is responsible for operating an 18-hole golf course, club house, and food service facility located at Kissena Park in Queens.  In 2008, Kissena Golf entered into a 20-year License Agreement (the License) with the New York City Department of Parks and Recreation (Parks) for the renovation, operation, and maintenance of the golf course, clubhouse, and food service facility.  In the audit, we examined whether Kissena Golf maintained adequate internal controls, properly calculated and reported its gross receipts, and complied with major requirements of its License.  This audit also examined whether Parks properly monitored Kissena Golf’s activities to ensure its compliance with the License.

Audit Findings and Conclusions

The audit found that while Kissena Golf properly applied the correct minimum annual License fees, it did not comply with the gross receipts reporting requirements of its License and understated the gross receipts it reported to Parks by $56,402.  Specifically, we found that Kissena Golf failed to report revenue collected and retained by two of its sublicensees, companies that sold golf reservations for the licensed premises.  Under their agreements with Kissena Golf, the sublicensees retained, in lieu of fees for their services, a portion of the sales revenue they collected from the use of the City’s golf course and Kissena Golf, in turn, omitted that revenue in its reporting of gross receipts to Parks.  As a result, Kissena Golf did not meet its obligation under the License to fully disclose all gross receipts that were generated from its use of the golf course.  While the unreported revenue retained by the two sublicensees during the audit period did not affect the amounts of Kissena Golf’s License fees payable to Parks because only the minimum payment was due during the audit period, the continued omission of revenue from future reports could improperly reduce Kissena Golf’s future payments to Parks for its use of the City’s golf course.  In addition, we found that Kissena Golf violated its License by entering into the two sublicense agreements in question without prior authorization from Parks.

Our audit also found that Kissena Golf did not maintain adequate controls to ensure proper segregation of duties.  For example, the one individual it employed as a manager was responsible for a host of key administrative duties, including closing out the point of sale (POS) system, depositing cash, and entering transactions into the general ledger.^[1]  Specifically, Kissena Golf relied on a single employee to authorize and record financial transactions and at the same time maintain custody of the related cash and other assets.  This concentration of activities with a single person increases the risk that accounting errors and misappropriation of funds could occur and go undetected.

We also found that Parks did not adequately review Kissena Golf’s reporting of capital improvements expenditures and as a result allowed Kissena Golf to include $4,403 of regular maintenance and other expenses, and $7,442 for purchases delivered to another golf course in its claimed capital spending under the License.  Further, neither Kissena Golf nor Parks was able to provide sufficient documentation, such as invoices, to substantiate $196,353 of Kissena Golf’s claimed capital improvements expenses—approved by Parks—for the licensed facility.  In addition, Parks did not ensure that Kissena Golf completed all capital improvements required by the License.  Finally, Parks did not enforce Kissena Golf’s obligation under the License to submit supporting documents for capital improvements when requested.

Audit Recommendations

To address these issues, we made 14 recommendations, seven to Kissena Golf and seven to Parks, including the following:

Kissena Golf should:

• Ensure that all revenue derived from the licensed premises is properly reported to Parks.
• Establish an adequate system of controls to ensure a proper level of segregation of duties.
• Complete all required capital improvements for the parking lot and storage building as required by the License.
• Obtain approval from Parks before entering into any sublicense or subcontract agreement affecting the management and operation of any element of the licensed premises.

Parks should:

• Ensure that Kissena Golf is in compliance with its License by:
• Requiring Kissena Golf to properly report all gross receipts;
• Requiring that Kissena Golf submit documents relating to its capital spending and other activities related to the License promptly upon request;
• Requiring Kissena Golf to maintain adequate internal controls, including proper segregation of duties.
• Take appropriate measures to ensure that Kissena Golf submits for review and approval by Parks all proposed sublicenses and subcontracts in advance of their being entered into.
• Properly review all invoices and related documentation submitted by Kissena Golf supporting its capital improvements to date and verify that claimed expenditures are only for capital improvement work as defined in the License.

Kissena Golf’s Response

Kissena Golf agreed with each of the report’s seven recommendations addressed to it.

Parks’ Response

Parks agreed with six of the seven recommendations addressed to Parks and partially agreed with one recommendation.  Specifically, Parks agreed that the $4,403 Kissena Golf spent for annual winterization expenses should be categorized as maintenance expenses and deducted from Kissena Golf’s capital expenditures, but disagreed with the audit recommendation that Parks should also deduct $7,442 for purchases delivered to another golf course.  Parks officials stated that, “[t]he operators of Kissena Golf also manage NYC Parks golf courses at Van Cortlandt, Douglaston and Forest Park.  Kissena has informed us that while some shipments may have been delivered to other courses that they operate, each of those purchases were designated for Kissena.”  Parks added that all but one of the relevant invoices bore the printed name of Kissena Golf.

Notwithstanding Parks’ acceptance of Kissena Golf’s assertion that goods purchased for the Kissena Park Golf Course were delivered to other golf courses, Kissena Golf did not provide documentation showing that those items were ultimately delivered to the Kissena Park Golf Course.  Therefore, we find no basis for changing our recommendation that Parks should deduct $7,442 from Kissena Golf’s capital improvement expenditures.

[1] Kissena Golf used a computerized POS system whereby payment terminals were linked to a central system that recorded and tabulated sales at and for the licensed premises.