Audit Report on the Financial and Operating Practices of the Snug Harbor Cultural Center

EXECUTIVE SUMMARY

The Snug Harbor Cultural Center Inc. (the Center) is one of 34 cultural institutions that receive financial support from the City of New York through the Department of Cultural Affairs (DCA). The Center’s mission is to "provide performing and visual arts to a broad audience." The Center opened on September 12, 1976. It is open to the public from 9:00 a.m. to 5:00 p.m. 362 days a year and offers many programs at minimal or no charge. More than 250,000 people visit the Center annually.

DCA provides funds to the Center for security, maintenance, energy costs, and educational programs. DCA is responsible for overseeing the operations of the Center to ensure compliance with the requirements outlined in its Procedures Manual For New York City’s Designated Cultural Institutions.

The Center received and spent a total of $1,257,613 in City funds during Fiscal Year 2001—$1,177,389 for Personal Service expenditures, $65,224 for Other Than Personal Service (OTPS) expenditures, and $15,000 for an event held on New Year’s Eve called "First Night."

The objectives of the audit were to determine whether the Center:

• Expended City funds in compliance with DCA requirements, Comptroller’s Directives, and its own internal procedures; and
• Had adequate and effective internal controls over its financial and operational processes.

The scope of our audit was Fiscal Year 2001 (July 1, 2000, through June 30, 2001).

To gain an understanding of the Center’s financial and operating policies and procedures, we interviewed various Center officials. We also reviewed the Center’s policies and procedures for its employees, the Snug Harbor Cultural Center Employee Handbook, the Fiscal Year 2000 Final Report/Fiscal Year 2002 Budget Request that the Center submitted to DCA, its certified financial statements, and applicable City regulations.

To familiarize ourselves with the work of the Center and to gain insight about the Center’s governance practices, we randomly selected 10 members of the Center’s 50-member Board of Directors (the Board) to interview. We also reviewed Board minutes for meetings held during Fiscal Years 1999 through 2001 (July 1, 1998, through June 30, 2001).

To determine whether all City funds received by the Center were properly deposited, we reviewed the Fiscal Year 2001 bank statements for the bank accounts relating to City funds, which included the General Fund Account and Payroll Account. We also determined whether all City revenue and expenditures reflected on the bank statements were properly recorded in the Center’s Fiscal Year 2001 General Ledger, Cash Receipts Journal, and Cash Disbursements Journal.

To assess the Center’s controls over its timekeeping and payroll functions, we randomly selected 23 of the 39 employees who were paid with City funds during the month of April 2001. We reviewed each of the employees’ four time records for that month.

To determine whether individuals on the Center’s payroll were bona fide Center employees, we observed the distribution of payroll checks and pay stubs on January 17, 2002, and verified employees’ identification.

To ascertain whether the Center complied with its own procurement procedures, we reviewed 35 OTPS expenditures totaling $65,224 that were recorded in the Center’s General Ledger for Fiscal Year 2001 and paid with City funds. We determined whether payments were supported by purchase requisitions, purchase orders, and invoices. We reviewed purchase requisitions and purchase orders to determine whether they were appropriately authorized. We reviewed invoices to determine whether they were mathematically accurate and were canceled to prevent duplicate payment.

We conducted several spot-checks of the area surrounding the Center to observe whether the Center had an adequate number of security officers and maintenance workers and whether they were performing their assigned responsibilities.

This audit was conducted in accordance with Generally Accepted Government Auditing Standards (GAGAS) and included tests of the records and other auditing procedures considered necessary. This audit was performed in accordance with the City Comptroller’s audit responsibilities as set forth in Chapter 5, § 93, of the New York City Charter.

The Center generally complied with DCA requirements, its own internal procedures, its bylaws, and Comptroller’s Directives. In addition, the Center had adequate internal controls over its financial and operational processes. However, there were certain weaknesses in the Center’s operational and financial practices.

The Center commingled $15,000 of Fiscal Year 2001 City funds with other Center funds. During Fiscal Year 2001, 13 payments totaling $1,257,613 in City funds were issued by DCA and deposited in the Center’s General Fund Account. However, only 12 payments totaling $1,242,613 were recorded as City revenue in the Center’s City General Ledger—a difference of $15,000. Also, the expenditures associated with the $15,000 were not recorded in the Center’s City Ledger. The receipt and expenditure of the $15,000 of City funds were recorded with other Center funds in another Center General Ledger.

During the exit conference, we were informed that DCA had provided the Center with $15,000 in City funds to be used for a New Year’s Eve event called "First Night." The Center’s Controller stated that the $15,000 in City funds was recorded in the First Night General Ledger rather than in the Center’s City General Ledger. As a result of our audit, the Center’s Controller revised the Center’s City General Ledger and recorded the receipt and expenditure of the $15,000 of City funds.

Four employees and the Chairman of the Board had relatives working at the Center. We found no instances of relatives of employees or Board members receiving preferential treatment. However, the practice of hiring relatives could be construed as a conflict of interest. Furthermore, it gives the appearance that the relatives have an unfair advantage in the hiring process. This practice can also affect the ability of the Center to fairly evaluate employees’ performances and to discipline them, if necessary.

The Center should develop detailed written regulations concerning the permissibility of hiring relatives of employees or Board members. These written regulations should be discussed and approved by the Center’s Board.

Current and former Center employees have expressed concerns that the Center does not have enough security personnel to provide a safe environment for its employees and visitors. We conducted several observations of the Center’s rangers. We did not see rangers posted at any of the Center’s entrances or circulating the grounds that are accessible to the public. We saw rangers only inside the Center’s buildings.

The Center’s Board needs to address ways to improve security, given the concerns expressed by the Center’s current and former employees and the results of our observations.

We found no weaknesses in the Board’s oversight of the Center. Board members appeared to be satisfied with the Center’s management and involved with Center operations. The Center’s Board meetings were held regularly. A quorum of Board members was present when decisions were voted on. Minutes were prepared for the Board’s regularly scheduled meetings; however, there were no minutes prepared for meetings held by the various committees.

The time records for 38 (44%) of the 88 time records in our sample lacked a supervisor’s signature. Without a supervisor’s signature documenting a review of the time records, we could not be certain that the hours paid for were actually the hours worked.

In our review of 88 time records, there were 13 instances, involving four employees and totaling 91 hours, in which leave time used by employees was not deducted from their leave balances.

• Leave forms were not used in 33 (95%) of the 35 instances in which leave was taken.
• Department heads did not indicate the hours that they worked on their time records.
• In 65 instances, employees either did not take a lunch break or took a short lunch break so that they could leave work early or earn compensatory time.

Although there were invoices for most purchases, there were no purchase requisitions for 90 (69%) of the 131 invoices we reviewed. In addition, there were no purchase orders for eight (6%) invoices; and purchase orders were not authorized by a Center official for 58 (44%) purchase orders.

The Center does not have a Purchasing Procedures Manual detailing the requirements of its purchasing process. Such written procedures would help ensure that there are standardized internal controls over the Center’s purchasing process.

This audit makes 15 recommendations to Center officials, the most significant of which are that they should:

• Ensure that all City revenues and expenditures are properly recorded in the Center’s City General Ledger.
• Ensure that enough funds are allocated within its budget to cover adequate security measures, including the monitoring of the Center’s grounds, entrances, parking lots, and buildings.
• Ensure that time records are reviewed and signed by a supervisor.
• Develop a Purchasing Procedures Manual that includes standardized purchasing procedures and require its use by all departments that make purchases.

The matters covered in this report were discussed with officials from the Center and DCA during and at the conclusion of this audit. A preliminary draft report was sent to officials from the Center and DCA and discussed at an exit conference on May 17, 2002. On May 28, 2002, we submitted a draft report to officials from the Center and DCA with a request for comments. We received a written response from the Center on June 12, 2002. Center officials agreed with the audit’s findings and said they have taken steps to implement the audit’s recommendations. The response stated:

". . . your recommendations . . . were extremely helpful in aiding us to reexamine our current procedures and refine them to be more in line with the standards that you have for organizations that receive city funding.

" We greatly appreciate your bureau’s work in this effort."