Audit Report on the Financial and Operating Practices of the 34th Street Partnership, Inc.

Executive Summary

The 34th Street Partnership, Inc. (the Partnership) is a not-for-profit corporation that provides supplemental services to the 34th Street Business Improvement District (34th Street BID) in Manhattan pursuant to a contract (the DSBS Contract) with the Department of Small Business Services (DSBS).  The objectives of this audit were to determine whether the Partnership used its resources to promote and support the 34th Street BID and complied with certain major terms of the DSBS Contract.  The DSBS Contract stipulates that the revenue of the 34th Street BID must be used for capital improvements, maintenance, public safety, community services and other specified services to improve business conditions and activities within the 34th Street BID.

In connection with the DSBS Contract, the Partnership also entered into two license agreements: one with the Department of Parks and Recreation (Parks) to manage the two parks within the 34th Street BID, and one with the Department of Transportation to operate, manage, and maintain the pedestrian plazas.  The Partnership’s operations are overseen by a Board of Directors (the Board) who are elected by the members of the district.

In Fiscal Years 2013 and 2014, the Partnership received assessments and other revenue of $11,205,122 and $11,510,278, respectively.  The Partnership reported expenses of $11,180,529 and $11,400,945 for those two years.

Audit Findings and Conclusions

Our audit found that the Partnership was generally in compliance with its DSBS Contract and the terms of its other City agency license agreements.  However, we found internal control deficiencies which may affect the Partnership’s oversight over its operations and the accuracy of its financial reporting.  Specifically, our audit found internal control weaknesses related to the Partnership’s timekeeping practices, as well as its cost allocation of joint salary expenses in connection with the shared managerial and administrative staff with the Bryant Park Corporation (BPC).

The Partnership also failed to consistently execute purchase orders prior to the billing of goods and services.  In addition, the Partnership failed to maintain written contracts with independent contractors, did not secure competitive bids received for contracts before the bid submission deadline, and did not adhere to the subcontracting procedures stipulated in its DSBS Contract.  The Partnership also did not retain essential documents in its personnel files, did not enforce its own policies and procedures, nor did it require conflict-of-interest disclosures.  Finally, the Partnership did not ensure that its subcontractors carried the proper insurance.

Audit Recommendations

To address these issues, we make six recommendations to the Board of the 34th Street BID and two recommendations to DSBS.

We recommend that the Board of the 34th Street BID should:

• Strengthen the Partnership’s internal controls, including but not limited to:
  • Implement a timekeeping system with features to account for each employee’s time-in/time-out, total hours worked, and a secure interface for data entry, review and approval processes;
  • Implement an appropriate methodology for allocating payroll expenses for employees who are shared by the Partnership and other entities;
  • Execute written contracts for all independent contractors and vendors conducting business with the BIDs;
  • Revise its procurement policies and procedures to adhere to the subcontracting requirements stated in the DSBS Contract.  Specifically, the Partnership should obtain at least three competitive bids for its contracts and select the lowest responsible bidder unless it can justify an alternate selection and obtain the required approval from the Board and DSBS; and
  • Implement monitoring procedures to ensure all Partnership employees adhere to the policies and procedures, such as educational assistance reimbursement procedures and solicitation procedures,  governing the BID’s operations;
• Ensure insurance coverage of all outside entities conducting business with the BID is in compliance with the insurance requirements of the City agreements;
• Ensure the Partnership officials execute purchase orders prior to the billing of goods and services to ensure that adequate approval is obtained, sufficient funds are available for potential expenses, and an appropriate receiving report is utilized;
• Ensure Partnership obtains the necessary conflict-of-interest disclosure forms from its key employees;
• Ensure sufficient documentation is maintained in personnel files to appropriately reflect the BID’s hiring, salary increases and termination practices; and
• Establish written policies and procedures to ensure the security and confidentiality of bid information prior to the submission deadline.

We also recommend that DSBS officials should:

• 7.             Ensure the Partnership implement the recommendations of this report; and
• 8.             Conduct periodic review of the Partnership’s operations to ensure compliance with the City agreements.

Agency Responses

In its response, the Partnership stated that, “[t]he organization has well established internal controls, more than adequate for its size and complexity, that have, as demonstrated by the unmodified audit opinions and ‘no material weakness’ reports, issued by KPMG LLP, resulted in financial information being accurately recorded in its books and records.”

In addition, the Partnership stated that it “is a $11 million company with 170 employees who are all closely supervised.  The definition of ‘adequate timekeeping procedures,’ and what those procedures require, for an entity of our size versus the City of New York, a $82 billion enterprise with 260,000 employees, is very different. The auditors do not acknowledge this distinction.”

The Partnership’s response to the audit reflects that it does not fully understand the importance of internal controls necessary to ensure accountability and transparency within its operations—two key areas of concern where an entity is performing tasks for and on behalf of the government and the public.  Further, every organization, regardless of size, should implement an adequate internal control structure to mitigate the risk of misstatement, misappropriation and other undesirable effects of poor internal controls.  The Partnership itself acknowledges that this audit has identified several internal control deficiencies that may affect the organization’s ability to manage the 34th Street BID.

Further, while we are pleased that the Partnership has had external audits, we note that the external auditor’s opinion and the engagement upon which that opinion was based expressly did not involve an assessment of the entity’s internal controls.  Within its assessment of the risk of material misstatement, the external auditor’s opinion clearly states that “the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design auditor procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.  Accordingly, we express no such opinion.”  (Emphasis added.)

Our findings and related recommendations are based on an examination and assessment of the effectiveness of the Partnership’s internal controls.  Notwithstanding its objections, the Partnership officials stated that they “agree with some of the auditors’ findings and related recommendations for improvements.”  Of the report’s six recommendations addressed to the Partnership, it agreed to implement four recommendations, and partially agreed to implement two related to the execution of written contracts and maintaining evaluations in personnel files.

DSBS generally agreed with the remaining recommendations directed to it.