Audit Report on the Compliance of PBE Golf, Inc., with its License Agreement and the Payment of License Fees Due the City

EXECUTIVE SUMMARY

On November 17, 2000, the Department of Parks and Recreation (Parks) entered into a 15-year licensing agreement with PBE Golf, Inc. (PBE) to operate, maintain, and manage Turtle Bay Cove, an outdoor recreational facility at Pelham Bay Park in the Bronx. Turtle Bay Cove has a driving range, a batting cage, a miniature golf course, and a food concession.

The agreement requires that PBE pay the City a minimum annual fee ranging from $90,000 in the first year to $100,000 in the fifteenth year, or a percentage of PBE’s gross receipts received from operating the facility, whichever is greater. PBE must also pay 10 percent of the revenue earned from the food concession and from miscellaneous sales.

The audit covered the period May 1, 2000 through April 30, 2001.To achieve our audit objectives, we reviewed the license agreement between Parks and PBE, interviewed PBE’s president and other essential personnel, and conducted a walk-through of the operations. We tested transactions to verify whether the internal controls over gross receipts were adequate and operating as represented by management. We also determined whether PBE complied with the principal requirements of its license agreement (e.g., the security deposit, liability insurance, payment of utility charges, and the completion of capital improvements).

This audit was conducted in accordance with generally accepted government auditing standards (GAGAS) and included tests of the records and other auditing procedures considered necessary. This audit was performed in accordance with the City Comptroller’s audit responsibilities, as set forth in Chapter 5, § 93, of the New York City Charter.

For May 1, 2000 through April 30, 2001, PBE reported gross receipts of $353,499 and paid $90,000 (the minimum) to the City in license fees. PBE maintained the required security deposit, had the required insurance coverage, and paid its utility bills on time. As of November 8, 2001, PBE had expended $351,463 (of the $629,400 required) on capital improvements in substantial conformance to the approved schedule. However, PBE did not report its gross receipts in conformance with its license agreement because it did not include the receipts of an unauthorized sublicensee on its gross receipts statements, and its receipts from vending machines lacked documentation.

The audit resulted in six recommendations. The following are the report’s major recommendations.

• PBE should obtain proper approval from Parks before entering into any sublicense agreements and should report the revenue earned by any sublicensee in the gross receipts reported to Parks.
• Parks should ensure that PBE complies with the report’s recommendations and ensure that the Castner Academy, an unauthorized sublicensee, operates under approved sublicense agreements at the City’s other golf facilities.

The matters covered in this report were discussed with PBE and Parks officials during and at the conclusion of this audit. A preliminary draft report was sent to PBE and Parks officials and was discussed at an exit conference on May 22, 2002. On May 23, 2002, we submitted a draft report to PBE and Parks officials with a request for comments. We received a written response from PBE on June 5, 2002. PBE’s response did not specifically address the report’s recommendations. However, in its response PBE stated that "it is management’s belief that the concerns outlined in your audit report will be resolved. . . . Any and all recommendations that can improve on the daily operations . . . are always greatly appreciated."

We received a written response from Parks on June 5, 2002. In its response, Parks stated that it agreed with all of the report’s recommendations and has issued a Notice to Cure directing PBE to implement the recommendations that relate to PBE’s operation.