Audit Report on the Financial and Operating Practices of the 34th Street Business Improvement District

AUDIT REPORT IN BRIEF

This audit of the 34^th Street Business Improvement District (34^th Street BID) covered the organization’s provision of services, compliance with its City contract, and adequacy of internal controls over funds and operations. The 34^th Street BID is funded by special assessments levied against district property owners and uses these moneys to enhance and promote the district. The Department of Small Business Services (DSBS) supervises and oversees the 34^th Street BID.

The 34^th Street BID shares its President, Controller, management and administrative staff, sanitation and security supervisors, outside consultants, and office facilities with the Bryant Park Restoration Corporation (Bryant Park BID). Shared employees are paid separately by both BIDs and shared office expenses are allocated between the BIDs.

The 34th Street BID generally provided the services required in its District Plan. However, reliance on verbal agreements and a lack of written documentation throughout the BID led to noncompliance with certain elements of the BID’s contract with DSBS and contributed to the weaknesses found in its internal controls.

The BID complied with most terms of its DSBS contract: it provided the prescribed supplemental services; it maintained complete financial records; it submitted annual reports to DSBS; and it had its annual financial statements certified by an independent certified public accountant. However, it did not comply with the contract in regard to two important areas: (1) subcontracting services, including the lack of written contracts; and (2) establishing a $500,000 short-term credit line without the required approvals.

The BID’s internal controls appear to be adequate in that it maintained adequate segregation of duties, and the transactions we reviewed appeared to be ordinary and reasonable. Nevertheless, there were weaknesses relating to allocations between BIDs and timekeeping.

To address these issues, we make 10 recommendations, namely, that the 34^th Street BID should:

• Ensure that it complies with the DSBS contract and enforce its procurement policies.
• Enter written contracts for all purchases of goods and services, including consultants, amounting to $20,000 or more.
• Ensure that either three bids are solicited or a "sole source letter" is obtained from DSBS, when required.
• Create a management report to track total dollars paid to each vendor and ensure that VENDEX investigations are performed when required (when payments exceed $100,000).
• Require subcontractors and consultants to include services provided and hours worked when submitting invoices to the BID.
• Report $500,000 line of credit with Atlantic Bank in the BID’s Fiscal Year 2003 financial statements.
• Ensure that management complies with its contract with DSBS and its bylaws by obtaining written approval from the Commissioner of DSBS and its Board of Directors prior to incurring any indebtedness.
• Annually advise the Board of Directors of each BID (34^th Street and Bryant Park) how the services of each shared employee is allocated between the BIDs and maintain written justification for these allocations.
• Maintain written records of leave balances for management and administrative staff.
• Document shared employee contributions to each BID.

The matters covered in this report were discussed with 34^th Street BID officials during and at the conclusion of this audit. A preliminary draft report was sent to 34^th Street BID officials on December 17, 2003, and was discussed at an exit conference on January 7, 2004. We submitted a draft report to 34^th Street BID officials with a request for comments on January 27, 2004. We received a written response from BID officials on February 10, 2004. The BID generally agreed with our findings and recommendations, although it did not specifically address the recommendations in its response.