Audit Report on the Financial Practices of the Economic Development Corporation For “Other General Expenses”

AUDIT REPORT IN BRIEF

The Economic Development Corporation (Corporation) is a local development corporation organized in accordance with the not-for-profit corporation law of the State of New York. The City and the Corporation have entered into two contracts under which the Corporation administers economic development programs relating to the attraction, retention, acquisition, rehabilitation, and improvement of commercial and industrial enterprises within the City.

The audit assessed whether reimbursements to Corporation employees for "travel and out-of-pocket expenses" and other charges to the "Other General Expenses" account were in accordance with the Corporation’s contracts with the City. In that regard, we determined whether the expenses were reasonable, justified, and properly documented.

The Corporation complied with some of its policies for processing payments. Apart from the exceptions noted in this report, we found that: payments were dated and included the required taxpayer identification numbers; vouchers were marked "paid"; vouchers were assigned individual general ledger accounting codes; check requests and reimbursement forms were submitted within the stipulated 60-day period; and payment requests contained the approval of the Department head.

However, there were instances in which the Corporation did not: maintain appropriate documentation to support expenses; justify that the expenses were business-related; follow its guidelines for awarding sole source contracts; obtain bids for procurements; and ensure that all payments to consultants were documented.

We questioned $288,405, or 38 percent, of the expenses reviewed because the Corporation was unable to provide documentation showing that the items or services paid for were reasonable, justified, and supported with adequate documentation. In addition, the Corporation awarded three sole source contracts totaling $40,624 without maintaining documentation to show that reasonable efforts were made to obtain offers from other possible responsible persons or entities or obtaining the Deputy Mayor’s approval. In at least four instances, the Corporation did not comply with the competitive bidding requirements for procuring goods and services in excess of $25,000. Moreover, the Corporation made payments totaling $124,082 to one of its consultants for expenses that lacked the required supporting documentation.

Also, our review of the Corporation’s "Other General Expenses" disclosed instances in which the Corporation did not follow its reimbursement and purchasing guidelines, such as: payments based on photocopies of invoices, registration forms, and flyers; approvals for meals and travel either not obtained or obtained after the expense was incurred; consultant contract files that did not including the Deputy Mayor’s approval; and purchases, each for more than $2,500, made without soliciting three bids.

Moreover, the Corporation provided no records or documentation to support the validity of a $1,368,304 write-off from its Bad Debts Account in Fiscal Year 2002; improperly paid approximately $2,950 in sales and occupancy taxes for which it is exempt for purchases and lodging in New York; and misstated its Miscellaneous Expense Account and its Section 208 Planning account.

We make 14 recommendations to the Corporation, including that it: ensure that all expenses are reasonable, necessary, and in accordance with its contractual agreements with the City; ensure that sole source agreements are awarded in accordance with the Master and Maritime Contracts; obtain bids and enter into formal contracts for purchases of goods and services exceeding $25,000; obtain all appropriate documentation, such as invoices, timesheets, receipts, and canceled checks, before approving payments to consultants; submit appropriate documentation for consulting contracts to the Deputy Mayor for approval; solicit bids for all purchases that exceed $2,500; ensure that its does not pay sales tax; and ensure that employee use of car services is in compliance with Travel and Meal Policy 8.4.