Audit Report on the Financial and Operating Practices of the 47th Street Business Improvement District

Executive Summary

In 1981, New York City and State passed legislation permitting property owners to define and self-fund commercial districts known as Business Improvement Districts (BIDs).  A BID is a public-private partnership through which property and business owners elect to contribute to the maintenance, development, and promotion of their district.  Special assessments paid by benefiting property owners fund BID operations.  BIDs provide services that supplement municipal services (supplemental services), such as security, sanitation, and marketing, as well as capital improvements.

In 1997, the City, through the Department of Small Business Services (DSBS), entered into a contract with the 47^th Street Business Improvement District, Inc. (the 47^th Street BID also known as the Diamond District BID).  Under the terms of the contract, the City collects and pays to the 47^th Street BID assessments that are levied on real property within the district.  In return, the 47^th Street BID agrees to provide certain supplemental services and capital improvements within the district.  The 47^th Street BID is located on 47^th Street between 5^th Avenue and 6^th Avenue (the District).  The 47^th Street BID contract states that the BID “shall” provide security, promotion and marketing, maintenance of capital improvements, and administration.

In its Financial Statements for Fiscal Year 2017, the 47^th Street BID reported revenues of $1,172,244 and expenditures of $1,355,458, which included $750,231 in program expenses and $605,227 in general and administrative expenses.

Audit Findings and Conclusions

During Fiscal Year 2017, the 47^th Street BID provided supplemental services to the District including security, promotion and marketing, sanitation, seasonal decorations, and administration.

However, the 47^th Street BID improperly spent $210,835 on security services—approximately half of the total amount spent on security services—that did not principally benefit property within the District.  In connection with both that improper use of BID funds and other expenditures, the 47^th Street BID did not provide supplemental services in accordance with its annual budget and did not explain the budget variances to its members and DSBS, as its contract with DSBS required.

The 47^th Street BID also failed to maintain adequate controls over its expenses.  As a result, the former Executive Director: (1) was paid significantly more—between $25,242 and $38,664 more—than the Executive Directors and Presidents of other similarly sized BIDs; (2) was able to improperly process unauthorized raises, commissions, and benefit payments totaling $68,318 for himself and the BID’s only other employee, the former Executive Assistant, during Fiscal Year 2017; and (3) charged unauthorized personal expenditures on the BID’s debit card totaling at least $18,686 for personal expenses such as taxis ($10,127), cell phones ($6,390), and meals ($2,169).

In addition, the 47^th Street BID failed to: (1) document that it competitively procured goods and services or justified and obtained Board approval for non-competitive procurements; and (2) enter into written contracts or obtain invoices detailing the scope of the services to be provided, the payment terms, and internal approvals.  In the absence of such documentation, we could not determine whether the BID’s expenditures were reasonably priced and properly approved, and moreover, whether they were legitimate and related to 47^th Street BID business.

With respect to corporate governance issues, the 47^th Street BID Board failed to implement a written conflict of interest policy and to comply with its By-Laws regarding board composition and the recording of meeting minutes.

Finally, the 47^th Street BID did not report on its website required information about its Board of Directors and management, finances, programs, services, and businesses served.

Audit Recommendations

Based on our findings, we made 23 recommendations to the 47^th Street BID and 4 recommendations to DSBS, including that the 47^th Street BID should:

• Cease providing supplemental security services that do not principally benefit property within the District as required by § 2A.02 of its contract with DSBS.
• Immediately seek reimbursement for security services that were incurred for Building 1 but were not paid by the property owner including, but not limited to, the $210,835 cited for Fiscal Year 2017.
• Ensure that its Annual Report includes narrative explanations for budget variances greater than 10 percent.
• Monitor payroll transactions, such as salaries and bonuses, to ensure that they have been properly approved.
• Independently review and monitor purchase and payment documentation.
• Maintain procurement documentation, including but not limited to, bid solicitations, responses, and procurement forms documenting the rationale for making the award, and non-competitive procurement justification memos to the 47^th Street BID Board.
• Maintain copies of vendor contracts and invoices documenting the scope of services, payment terms, and authorized approvals.
• Immediately adopt and oversee the implementation of a conflict of interest policy that includes, at minimum, the provisions set forth in New York State Not-For-Profit Corporation Law (NPCL) 715-a (b).
• Review member information to ensure that individuals are qualified for membership in each of their respective classes.
• Immediately hold elections to fill the Board Vice Chairman and Vice President positions or, in the alternative, take required action to eliminate the positions.
• Maintain complete and accurate records of all Board and Board committee meetings.  Such records should be in written form and include attendees, discussions, and actions taken at meetings.
• Immediately post on its website current information required by its contract including: the Executive Director’s contact information; a list of Board members; District boundaries; a list of businesses within the District; a brief summary of programs and services; Annual Report; audited financial statements; and detailed District map.

Agency Response

The 47^th Street BID did not agree with or address the report’s findings that it failed to provide supplemental services in accordance with the contract and spent funds on supplemental security services that did not principally benefit property within the District as well as the associated recommendations.  The 47^th Street BID maintained that, operationally, it was necessary to provide security services outside of the District.  However, the contract between the 47^th Street BID and DSBS and the 47^th Street BID Plan prohibit the 47^th Street BID from using BID monies to pay for services outside of the district.  The 47^th Street BID also stated that the Board approved the security arrangement and that the BID was fully reimbursed.  However, the 47^th Street BID did not provide us with documentation to show that the Board approved the security arrangement.  In addition, we cannot be assured that the 47^th Street BID was reimbursed for security services since it recorded payments from the owner of Building 1 as donations and advertising revenue in its financial records and regulatory filings.  Further, the 47^th Street BID was not reimbursed for additional insurance costs associated with the NYPD Paid Detail program.

While the 47^th Street BID did not expressly agree with the report’s remaining findings and recommendations, the BID maintained that it took actions related to many of them, including that it revised its By-laws and Financial and Administrative Procedures, implemented a Conflict of Interest Policy, and took other corrective actions to strengthen controls over its expenses and comply with its contract with DSBS and applicable standards and regulations.  However, based on our review of documents received at and after the exit conference, the 47^th Street BID generally did not take appropriate corrective action.

DSBS stated that it would consider the report’s findings and determine whether the 47^th Street BID was in breach of its new contract.  In addition, DSBS stated that it extensively reviews and analyzes annual reports.