Audit Report on the New York Yankees Rental Credits for the 2nd Quarter of 2001

EXECUTIVE SUMMARY

In accordance with the August 8, 1972, lease agreement between the New York Yankees (the Yankees) and the City of New York (the City), the Comptroller’s Office is required to audit all rental credits claimed by the Yankees for maintaining Yankee Stadium. Under the terms of the lease, the Yankees are responsible for maintaining the City-owned stadium. The costs incurred by the Yankees for maintaining the stadium are offset against the rental income due the City from the Yankees for the stadium lease. Therefore, every approved dollar spent in maintaining the stadium and accounted for as a rental credit results in a dollar-for dollar decrease in the rent due to the City.

The general rule for eligible work is that the City pays to maintain all areas of the stadium except Yankees offices, concession space, the receiving room, the Commissary, the restaurant space (Yankee Club, Yankee Dining Room, Pinstripe Pub, and Stadium Club). The City also pays for materials used to maintain the stadium; however, it does not pay for uniforms or tools.

The rental credits are subject to the approval of the Comptroller’s Office. According to the lease, the Yankees are required to submit to the Comptroller, not more than once a month, all documentation necessary for the audit of these rental credits. However, the Yankees and the Comptroller’s Office have agreed that the Yankees will submit the maintenance credits and supporting documentation on a quarterly basis instead.

Furthermore, the Comptroller’s Office has agreed to audit the quarterly submissions and to present its findings to the Yankees in a preliminary draft report and at an exit conference before issuing a draft report. Within two weeks of the issuance of the draft report, the Yankees will submit any documentation previously omitted to the Comptroller’s Office to support any rental credits claimed. Once the Comptroller’s Office receives and reviews this documentation, it will issue a final report.

The objectives of this audit were to:

• verify the adequacy of the documentation supporting the submitted labor and materials charges,
• ascertain the eligibility for reimbursement of the invoices in accordance with the lease in the form of rental credits, and
• verify the accuracy of the computations and to ensure that non-City charges are not credited toward the rent due under the lease for the period April 1, 2001, through June 30, 2001.

The Comptroller’s Bureau of Financial Audit and Bureau of Engineering examined 100 percent of the labor and materials charges, and the supporting documentation submitted by the Yankees.

Financial auditors audited the billings of two subcontractors—River Payroll (Cleaning Services), under Schedule A-1, and PEM Electric, under Schedule A-2—for sufficient documentation in the form of invoices, time sheets, and activity reports to determine whether these billings for labor and materials were justified under the lease.

The Bureau of Engineering is responsible for the audit of all other vendor invoices covered under Schedules A-3 through A-6 with the schedule headings of Miranda Fuel, Brown & Silver, Stadium Repairs, and Other Expenses. The Bureau’s findings are included in this report.

The audit scope covered the period April 1, 2001, through June 30, 2001. Financial auditors audited all source documents for each month of the quarter submitted under Schedule A-1 (River Payroll) and Schedule A-2 (PEM Electric) for reimbursement through the rental credits. These documents included time sheets, payroll reports, and invoices to support the costs of labor and materials charged to the City.

In addition, we verified the charges for materials under Schedule A-2 (PEM Electric) for appropriateness and reasonableness. The settlement agreement of October 29, 1993, designated the Yankees as agents of the City. Therefore, maintenance credits for sales tax are not accepted as credits against rental income. In this regard, we verified that charges for materials did not include sales tax.

We verified all retroactive salary adjustments for accuracy against supporting documentation or relevant agreements.

We documented all recurring unreasonable charges for rental credits on a spreadsheet with our comments, and included them as appendices to this report. We calculated all dollar amounts on the supporting schedules for accuracy and reconciled these amounts with the total amounts listed on the lead schedule for all vendors from Schedule A-1 through A-6.

The Bureau of Engineering audited all of the billings on Schedules A-3 through A-6 for accuracy and eligibility for reimbursement. The Bureau of Engineering used the following steps to allow or to disallow rental credits:

• To verify the cost of an item, an invoice and check must be submitted.
• To receive maintenance credit toward rent, the Yankees must provide pre-authorization and acceptance reports from Department of Parks and Recreation (Parks) for the work or services performed.

Without the submission of the above supporting documentation, maintenance costs submitted as credits against rental income are disallowed.

These audits are lease-mandated; thereby requiring the Yankees to submit all source documents to the Comptroller’s Office in order to receive credits toward rental income due to the City.

We did not conduct an entrance conference or evaluate the Yankees’ internal controls over the process and procedures for payment of the invoices for maintenance. However, we verified that all documents contained valid certification from Parks’ designees at Yankee Stadium as proof that labor costs were incurred and that material was purchased and received.

The audit was conducted in accordance with generally accepted government auditing standards (GAGAS) and included all tests we considered necessary under the circumstances. The 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 matters covered in this report were discussed with officials from the New York Yankees and from Parks during and at the conclusion of this audit. A preliminary report was issued on March 19, 2002. On April 22, 2002, Yankee officials waived their right to an exit conference. Parks, however, submitted documentation supporting a portion of the credits that we were disallowing as rental credits because of lack of its approval. On April 26, 2001, we issued a draft report with a request for comments.

Our draft report disallowed rental credits totaling $148,161.16. After review of documentation provided by Parks and the Yankees subsequent to the draft report, we allowed additional rental credits of $23,462.89. This resulted in our final disallowance of $124,698.27, of which the Yankees accepted $121,841.95 as a Yankees cost. The remaining disallowance of $2,856.32, under schedule A-1, consists of charges related to Yankees assignments. These credits are not chargeable to the City. In this regard, Parks should ensure that the Yankees deduct $124,698.27 from their rental credits.