Audit Report on the Department of Citywide Administrative Services Collection of Rent Arrears

Audit Report In Brief

This audit assessed the adequacy of the Department of Citywide Administrative Services (DCAS) efforts to collect rent arrears from tenants and former tenants of City-owned property.

The DCAS Division of Real Estate Services (DRES) manages the City’s real estate portfolio of commercial, industrial, and waterfront properties, residentially-zoned vacant lots acquired through tax foreclosure or condemnation, and properties formerly managed by other City agencies. These properties are returned to the City’s tax rolls through sale at public auction or increase City revenues through short-term or long term lease agreements.

Audit Findings and Conclusions

DCAS maintains adequate efforts to collect rent arrears.  DRES collection procedures comply with Directive #21 and are consistently applied.  In addition, DRES actively pursues all available activities and efforts to encourage tenants and former tenants to pay their arrears.  This includes entering into payment agreements and conveying accounts to the Law Department for further collection proceedings once DRES has exhausted all of its internal collection efforts.  However, of the $31.1 million in arrears reflected in DRES records as of July 1, 2007, $28.7 million represented a small number of special cases for which routine DRES collection procedures were not, and would not be, sufficient to encourage the tenants to pay.  These arrears arose from long-standing disputes and contingencies, and remotely collectible accounts.  Consequently, the adjusted arrears balance of $2.4 million (exclusive of the $28.7 million for these special cases) viewed in relation to the $53 million in rental revenue collected by DRES in Fiscal Year 2007 strongly suggests that in general terms, DRES collection procedures are effective.

Some weaknesses were noted regarding terminated accounts with unpaid arrears transferred to the Law Department for further collection proceedings.  Specifically, DRES does not have a benchmark time period to guide the transfer of terminated accounts for collection proceedings that would increase the likelihood of recouping payment from debtors.  In addition, DRES does not adequately follow up on cases transferred to the Law Department, and does not have formalized write-off policies.

Audit Recommendations

To address these issues, the audit makes seven recommendations. Among them, we recommend that DRES should:

• Ensure that cases for which all internal collection efforts have been exhausted are transferred to the Law Department in a timely manner.

• Establish a benchmark (time period) for transmitting cases to the Law Department for collection and ensure compliance with this time frame so as to increase the likelihood of collection.

• Require that DRES establish ongoing communication with the Law Department to report on the status of accounts transferred for collection, especially those accounts that are not conveyed to the external collection agency.

• Develop formal write-off policies consistent with its operations.

• Review the current cases transmitted to the Law Department to determine whether any should be considered for writing off.

DCAS Response

Of the seven recommendations made in this report, DCAS generally agreed with all seven.  The full text of the DCAS response is included as an addendum to this report.