Audit Report on the Compliance of the Golf Center of Staten Island, Inc. with its License Agreement for the Silver Lake Golf Course

EXECUTIVE SUMMARY

This audit was conducted to determine whether The Golf Center of Staten Island, Inc. (GCSI or the Licensee) properly calculated and reported its gross receipts and license fees due to the City and paid the fees on time; maintained adequate internal controls over the recording and reporting of its gross receipts; and complied with certain other major requirements of its license agreement (i.e., capital improvements, insurance coverage, security deposit, and utility charges).

In 2007, the Department of Parks and Recreation (Parks) entered into a twenty-year license agreement (the License Agreement) with GCSI for the renovation, operation, and maintenance of an 18-hole golf course, clubhouse, and food service facility at Staten Island’s Silver Lake Park. During year seven of the License Agreement (the period under review), the contract required GCSI to pay the City the minimum annual fee of $425,000 or certain percentages of gross receipts, whichever is greater. The percentages of gross receipts payable to Parks are as follows: 26 percent of gross receipts from greens fees, reservations, and cart rentals (up to 59,999 rounds); 10 percent of merchandise and other revenue; and 8.5 percent of food and beverage revenue, up to $1 million. In addition, GCSI is required to: (1) maintain adequate systems of internal controls that show in detail the total business transacted and the gross receipts; (2) complete certain capital improvements specified in the License Agreement by the end of 2010, valued at a minimum cost of $2,599,822; (3) submit a security deposit to the City of $156,250; (4) pay all federal, state and local taxes applicable to the operation of the licensed premises; (5) carry proper insurance coverage; and (6) pay all required utility charges. GCSI must also pay a surcharge of $4.00 per round of golf played (excluding juniors aged 16 and younger) or an annual minimum surcharge fee of $140,000, whichever is greater.

For our audit period, May 1, 2013, through April 30, 2014, GCSI reported gross receipts of $1.8 million and paid license fees totaling $565,000 and $5,106 in late fees.

Audit Findings and Conclusions

GCSI failed to report $86,277 in bartered golf revenue and also underreported 3,200 rounds of golf to Parks. Although these issues result in additional reportable revenue, GCSI did not surpass the minimum amount due to Parks and, therefore, there are no additional license fees due the City as a result of these past omissions. However, the practices that led to these reporting failures could affect future payments to Parks should golf sales increase. Further, our audit found control weaknesses with certain revenue recording procedures. Specifically, GCSI did not utilize pre-numbered contracts for parties and golf outings, used cash boxes for beverage carts and a food stand, and bypassed the existing controls for a GCSI sponsored event that took place in 2014.

In addition, our audit revealed significant issues related to GCSI’s compliance with other major requirements of the License Agreement. As of the end of our audit fieldwork, GCSI had not filed or paid New York State sales tax since 2009 and, according to its accounting records, owed an estimated $234,000 in taxes to New York State. Furthermore, GCSI did not file the applicable Federal, State or City tax returns since 2009. At the audit exit conference, a GCSI official provided us with tax returns indicating that they recently filed Federal, State, and City tax returns for 2010 and paid the taxes due. GCSI official also provided us with quarterly sales tax returns for the periods between December 2014 and May 2015 and documentation to evidence payments for the taxes due. In addition, according to Parks’ tracking report dated April 2015, GCSI has yet to expend $538,343 of the $2.6 million it is obligated to spend in capital improvements. Finally, Parks’ report tracking capital improvements made to the premises lacks the level of detail necessary to track the status of specific improvements required by the agreement.

Audit Recommendations

We make 13 recommendations, eight to GCSI and five to Parks, including the following:

GCSI should:

• Ensure all revenue derived from licensed premises is properly reported to Parks;

• Ensure all golf rounds are accurately reported to Parks;

• Ensure all contracts are sequentially pre-numbered and that an event calendar continues to be maintained;

• Immediately file all outstanding tax filings and remit all taxes due;

• Coordinate with Parks to develop a list of those outstanding capital improvements that remain, the corresponding unexpended dollars for each improvement and a specific timetable for the completion of each improvement.

Parks should:

• Determine those outstanding improvements and corresponding dollar amounts and develop a specific timetable and cost estimate to complete each improvement based upon current dollars;

• Update tracking reports to reflect any changes in capital improvements;

• Ensure GCSI files all tax returns past due and remit all taxes due to applicable taxing authorities.

GCSI’s Response

GCSI officials agreed with the audit’s findings and recommendations.

Parks’ Response

In its response, Parks agreed with the report’s findings and recommendations, stating, “While Silver Lake paid the appropriate license fees and maintained their required insurance, the Report raises important issues related to GCSI’s internal controls, outstanding filings and payments of certain taxes, and GCSI’s completion of their capital project commitment.” Parks stated it will monitor GCSI’s compliance with the audit’s recommendations.