Audit Report On The Compliance Of Port Imperial Ferry Corporation With Its Lease Agreement For Pier 79

Executive Summary

On April 16, 2002, New York City (the City), through the New York City Department of Transportation (DOT), entered into a 10-year lease agreement (the Lease), which was subsequently renewed through October 23, 2025, with Port Imperial Ferry Corporation (PIFC), to operate and manage the West Midtown Ferry Terminal (the Terminal) and to provide commuter ferry services at Pier 79.  Pursuant to the Lease, PIFC is required to remit to the City several types of rent payments relating to two of its activities—the commuter ferry operation and the terminal operation.  If any of the rents are overdue, the City can assess late charges equal to the aggregate of $100 plus 2 percent per month (Late Charge Rate) on the overdue balance.

In addition to the rent payments, PIFC is required to submit to the City (1) a quarterly revenue statement (Revenue Report), signed and verified by a PIFC officer, and (2) an annual Revenue Report and certified financial statements, on a cash basis, within 120 days after the end of each lease year.

The New York City Economic Development Corporation (EDC) is the administrator of the Lease and as such bills and collects the fees due to the City.  According to EDC’s records, PIFC paid $870,046 in Base Rent and Percentage Rent during Calendar Years 2017 and 2018.

In this audit we examined whether PIFC properly reported all revenue, made accurate and timely payments, and complied with other major requirements of the Lease such as insurance coverage and payment of water and sewer charges.  In addition, we examined whether DOT and EDC had proper oversight over the Lease.

Audit Findings and Conclusions

The audit found that PIFC maintained the required insurance coverage and paid the applicable water and sewer charges on time in accordance with its Lease.  However, PIFC underreported the revenue generated through its commuter ferry and terminal operations to the City, misclassified certain revenue, and did not pay the required rents on time.  In connection with those inaccuracies, underpayments, and late payments, we found that, as of February 28, 2019, PIFC owed a total of $70,769 to the City for additional Percentage Rent, overdue rents, and associated late charges.

Our audit also found that EDC: (1) did not promptly and accurately calculate the rate increases on Base Rent every fifth year as required under the Lease, and did not credit the correct accounts for certain payments PIFC made; (2) incorrectly calculated late charges; and (3) inappropriately waived $5,597 in Base Rent and late charges.  As a result, at least $44,075 of the City’s revenue, while ultimately received, was not received timely.  In addition, EDC did not implement procedures to verify the accuracy of the reports submitted by PIFC.  As a result, EDC was unable to determine whether the ridership information provided by PIFC was accurate.

Audit Recommendations

To address these issues we make six recommendations to PIFC and eight recommendations to EDC, as follows:

PIFC should:

· Remit $70,769 for additional Percentage Rent, overdue rent and late charges that it still owes the City for Calendar Years 2017 and 2018.

· Include ticket revenue generated from all of its commuter ferry routes departing from the Terminal, including Belford Route and the BFC commuter service routes, when calculating Percentage Rent for the commuter ferry operation.

· Properly classify terminal revenue in its general ledger in order to accurately calculate the Percentage Rent due.

· Accurately report all revenue received from the terminal operation when calculating the Percentage Rent.

· Include all additional rent payments received from its sub-leases for Pier 79 when calculating Percentage Rent due.

· Ensure timely payments to the City to avoid late payment charges.

EDC should:

· Ensure that PIFC remits the amount of $70,769 and all overdue rents, additional Percentage Rent and late charges to the City.

· Review and calculate the total amount PIFC owes the City from understated revenue for prior periods not covered in this audit in accordance with the Lease terms.

· Ensure Base Rent increases are promptly and accurately computed and billed to PIFC.

· Ensure that PIFC payments are credited to the appropriate account to properly reflect the payments received.

· Calculate late charges in accordance with the Lease requirements and ensure that PIFC remits the amounts as required by the Lease.

· Ensure that there is proper justification and authorization before waiving any fees and charges due to the City.

· Implement review procedures to verify the accuracy and completeness of the information contained in PIFC’s Revenue Reports to ensure all revenue is included in accordance with the Lease.

· Review the terms of the Lease to effectively administer its requirements.

Agency Response

PIFC generally agreed to implement the six recommendations addressed to PIFC.  In its written response, PIFC stated, “[w]e have reviewed and made all necessary changes in both accounting and policies and procedures to insure all errors are avoided in the future calculations of the percentage rent.”

EDC generally agreed with seven recommendations but disagreed with certain aspects of three of these recommendations.  Specifically, EDC did not agree to collect the full amount of late charges assessed by the audit from PIFC; disagreed that it had incorrectly assessed late charges; and disagreed that it did not have justification for waving late charges and Base Rent.  For the remaining recommendation, EDC stated that it disagreed with any assertion that it has not effectively administered the Lease.

As the lease administrator, EDC’s responsibilities include the proper oversight of the Lease to ensure the accuracy of the revenue reported and remitted to the City.  As identified in the audit, EDC did not implement sufficient procedures to ensure that revenue was accurately reported and remitted and, therefore, it did not properly oversee the Lease.  Had EDC administrated the Lease in accordance with the actual requirements along with proper verification and reviewing procedures, the issues cited in this report would have been identified and addressed by EDC in a timely manner.