Audit Report on the Compliance of South Beach Restaurant Corporation With Its License Agreement
AUDIT REPORT IN BRIEF
On November 9, 2000, the Department of Parks and Recreation (Parks) entered into a 20-year license agreement with the South Beach Restaurant Corporation (SBR&C) to renovate, operate, and maintain the South Fin Grill (restaurant), the Vanderbilt at South Beach (catering facility), and the Boardwalk Café (snack bar) all located at 300 Father Capodanno Blvd. in Staten Island. Construction delays postponed the opening of the concession, leading to a modification of the license agreement term to cover June 1, 2005, through May 31, 2025.
Under the agreement, during operating year 2008 (June 1, 2007, to May 31, 2008), SBR&C was required to pay the higher of either a minimum annual fee of $60,000 or four percent of any gross receipts that exceed a $1,500,000 threshold. SBR&C reported $6,512,232 in gross receipts and paid Parks $260,489, which amounts to the four percent of total gross receipts.
Our audit objective was to determine whether SBR&C maintained adequate internal controls over the recording and reporting of its gross receipts derived from its restaurant operation.
Audit Findings and Conclusions
SBR&C does not maintain adequate controls over the recording and reporting of its restaurant gross receipts processed through its computerized point-of-sale (POS) system and did not include $172,209 in revenue from preferred vendors in its monthly reported gross receipt statements to Parks. Our review of SBR&C’s internal controls over its restaurant operations revealed certain weaknesses in the design and operation of the POS system. Specifically, the system does not guarantee the generation of sequentially numbered checks, and the system’s compensating control feature, designed to ensure the integrity of the restaurant’s financial transactions, contained small but noteworthy discrepancies. It should be noted that we found no evidence of wrongdoing, but the limitations of the POS system prevented us from being reasonably assured that all restaurant income was reported to Parks.
In addition, SBR&C did not report at least $172,209 in preferred vendor income and did not maintain adequate records or contracts for this revenue. Consequently, SBR&C owes Parks $6,888 in additional fees. Subsequent to the issuance of the draft report, SBR&C paid the $6,888 that was due. These issues are in addition to those Parks disclosed in a 2008 internal audit report, which found, among other things, that SBR&C underreported gross receipts and failed to remit the capital expense fee.
Audit Recommendations
We make four recommendations—two to SBR&C and two to Parks. Among them, we recommend that SBR&C should ensure that all pre-numbered restaurant checks are accounted for and that Parks should conduct a follow-up audit to ensure that SBR&C has implemented the recommendations.