Audit Report on the Financial Practices of the New York City Marketing Development Corporation

AUDIT REPORT IN BRIEF

In March 2004, the City entered into a contract to retain New York City Marketing Development Corporation (NYC Marketing) as the City’s exclusive marketing and licensing consultant. NYC Marketing is to assist the City in developing, enhancing, and protecting City trademarks, patents, copyrights, and other City assets in order to generate revenues and other resources for the City. NYC Marketing seeks to gain new revenue for the City, to support City agencies and initiatives, and to encourage City growth through economic development and tourism.

Under the City contract, NYC Marketing is to prepare its program budget and financial plan in accordance with procedures and methodology determined by the Mayor’s Office of Management and Budget (OMB) so that financial operations can be monitored. The contract also states that NYC Marketing may retain revenues in an amount necessary to meet its cash operating requirements; any excess revenue is to be paid to the City.

This audit determined whether NYC Marketing accurately reported its revenue and expenses, remitted excess revenue to the City in accordance with the City contract, and complied with certain significant provisions of the contract.

Audit Findings and Conclusions

NYC Marketing accurately reported revenue and expenses, and its expenses were valid. However, the City has yet to establish formal procedures and a methodology that would allow it to effectively monitor NYC Marketing’s financial activities to ensure that funds in excess of NYC Marketing’s cash operating requirements are paid to the City. In fact, for the fiscal year ending June 30, 2005, NYC Marketing reported a cash balance of approximately $1.6 million, but did not remit a portion of the excess cash to the City.

Further, NYC Marketing underpaid the City its full share of the commission from the sale of Snapple beverages sold on City property. Consequently, NYC Marketing owes the City $235,834 in additional commission payments.

Audit Recommendations

To address these issues, we recommend that NYC Marketing:

• Pay the City the full Snapple commission received as of June 30, 2005, (less the seven percent paid to Octagon, Inc., a company retained to develop a vending machine program) and remit the additional commission of $235,834 due the City.
• Pay all subsequent commissions it receives from Snapple to the City.

We recommend that OMB:

• Establish written procedures and a methodology that would enable it to closely monitor NYC Marketing’s financial activities to ensure that funds in excess of NYC Marketing’s cash operating requirements are paid to the City.
• Develop financial benchmarks to evaluate NYC Marketing’s budgetary needs and to ensure that the City receives a portion of the revenues generated by NYC Marketing activities.

Ensure that NYC Marketing addresses the report’s finding and implements the report’s recommendation.