Audit Report on the Compliance of Queens Ballpark Company, L.L.C. with Its City Parking Facilities Agreements
June 26, 2017 | FN17-080A
The City of New York (the City), acting through its Department of Parks and Recreation (Parks), entered into four agreements with Queens Ballpark Company, LLC (QBC), a subsidiary of Sterling Mets, L.P. (the City agreements). The City agreements provide for the management, operation and maintenance of several parking facilities near Citi Field Stadium in Flushing, Queens that are predominantly used for events held at the stadium and for commuter parking. The parking operations also include 15 smaller parking sites used mainly as auxiliary parking for Citi Field Stadium, the US Open Tennis Championships, and for special events such as flea markets, concerts and commercial promotions. Parks is responsible for administering the agreements to ensure compliance and to collect the proper rent from QBC in accordance with the agreements.
The rent that QBC pays the City, called “base rent” in the City agreements, is determined by a formula based on net revenue. In this audit we examined whether QBC accurately reported revenue and expenses, paid required fees to the City in a timely fashion, and complied with other major requirements of its City agreements. The audit also examined whether Parks maintained adequate oversight to ensure QBC’s compliance with the agreements.
Audit Findings and Conclusions
Our audit found that QBC understated its net revenue by at least $294,127 and, as a result, owes the City at least $147,064 in additional base rent. We also found inconsistencies in QBC’s books and records and that QBC’s point-of-sale system lacked the controls needed to ensure a complete and accurate record of all parking-related transactions. Further, we found that QBC did not adequately verify the accounting of the special-events revenue and expenses reported by a related company, CF Hospitality, LLC (CFH), and did not notify Parks of special events as required by the City agreements. Apart from those issues, we found that QBC complied with the other major terms of the City agreements, including that it maintained required insurance coverage, submitted required revenue reports to the City, used the correct formula (although with an incorrect net revenue figure) to calculate its base rent, and remitted the base rent that it did pay on time.
This report makes eight recommendations to QBC and five recommendations to Parks, including that QBC should:
- Remit $147,064 in additional base rent to Parks.
- Ensure that base rent is accurately calculated by, among other things:
- Including all prepaid parking space sales as gross parking revenue;
- Correctly reporting any overuse of the free team parking spaces as gross parking revenue; and
- Adding back all discounted value as gross parking sales.
- Properly review CFH’s operation to ensure that it correctly reports special events revenue and expenses in accordance with QBC’s agreements with the City.
- Establish a written agreement with CFH that clearly details the responsibilities of each party for all special events managed or booked by CFH.
- Provide all requested documents that are necessary for the City, including the Comptroller’s Office, to determine whether QBC is complying with the City agreements, including but not limited to all catering concession agreements that generate revenue or expenses related to special events held in whole or part in any of the parking facilities.
- Accurately record all revenue and expense transactions in its general ledger, to ensure that it includes all business transactions.
- Strengthen its internal controls by modifying its point-of-sale system, by at a minimum:
- Ensuring that the system records each transaction number in sequential order without gaps, using a numbering system that correlates to the date and time each transaction occurred, and that control procedures to account for voids, cancellations, or other discrepancies in sequential numbering are implemented and tested; and
- Recording all parking transactions, including free parking and prepaid parking, in the point-of-sale system.
- Ensure that Parks is notified of all special events to be held in the Citi Field parking lots.
- Ensure that QBC remits the additional base rent due assessed in this report.
- Determine whether the revenue allocation methodology used by QBC to report special events revenue is reasonable.
- Review the special events files and determine whether QBC accurately reported its revenue and expenses.
- Review QBC’s Calendar Year 2016 records to determine whether it owes additional base rent for the period.
- Ensure QBC implements the recommendations of this report.
In its written response, QBC was critical of our report findings; however, it did not directly address each of our recommendations. QBC generally objected to the report stating that it contained “incorrect conclusions due to the auditors’ or the Comptroller’s misinterpretation of the City agreements and misunderstanding of QBC’s accounting and operations.” However, after a careful review, it is evident that QBC’s objections are unfounded. Both during our audit and in its response to this report, QBC raised a number of arguments, but failed to provide information to substantiate its positions. By contrast, the audit findings were based on the plain language of the City agreements together with a detailed analysis of QBC’s books and records.
Notwithstanding QBC’s criticisms of the audit report, we note that to a significant degree, it acknowledged the validity of the report’s findings by agreeing to take appropriate steps to strengthen its controls. In particular, QBC stated that “QBC will . . . review internal policies to determine if procedures can be strengthened, and will take appropriate steps to do so if warranted, [and that] it will ensure that CFH maintain more robust event folders. . . . [In addition,] despite the compensating controls that are currently used to ensure accuracy, QBC is working with representatives of BYPASS to find a manageable solution to providing unique sequencing.”
In Parks’ response, it generally agreed with our recommendations as they applied to Parks. With respect to QBC’s use of excessive team parking spaces, Parks responded that “Parks is reviewing this matter with our General Counsel and the City’s Law Department.”