Audit Report on the Randall’s Island Sports Foundation’s Compliance with Its License Agreement with the Department of Parks and Recreation

Randall’s Island Sports Foundation (RISF) was founded in 1992 as a not-for-profit corporation formed to promote and assist in the restoration, maintenance, and operation of Randall’s Island on the East River between East Harlem, the South Bronx, and Astoria. The Executive Director of RISF serves as the Administrator of the park and is dually employed by the New York City Department of Parks and Recreation (Parks). On January 29, 2007, RISF entered into a five-year license agreement with Parks. The license agreement authorizes RISF to provide various services on Randall’s Island such as athletic, educational, and recreational activities. Any revenue earned on the island is retained by RISF to maintain and provide services on the island. The agreement also authorizes RISF to retain revenue derived from concessions operating on the island to be used for the operation and maintenance of the park. Any funds received by RISF in excess of the annual operating and maintenance budget established in conjunction with Parks must be returned to Parks on behalf of the City.

Our objective was to determine whether RISF accurately recorded and reported revenues and whether the expenses were reasonable, appropriate, and in compliance with the license agreement.

Audit Findings and Conclusions

Generally, RISF accurately recorded and reported revenues and incurred expenses that were reasonable, appropriate, and in compliance with the license agreement. However, we noted two internal control issues. RISF improperly transferred or deposited $293,076 of license revenue (City funds) to its private bank account. Combining City license revenue with donations can result in City funds being used to pay expenses that are not directly associated with the management and maintenance of the Park or to be kept by RISF should the partnership between the two parties cease. In addition, RISF misclassified $160,000 of the $293,076 as donations rather than City revenue. Misclassifying license revenue as donations can affect money due to the City at year end.

Other issues which came to our attention relate to Parks’s oversight. Parks did not notify the New York City Conflicts of Interest Board (COIB) of significant changes to the Administrator’s dual compensation from the City and RISF, and, as a result, may be in violation of conflicts-of-interest laws. Since 2004, the Administrator’s salary has substantially changed at least two times without notification to COIB, while the portion paid by the City has also substantially changed at least once. These changes not only raise concerns about whether the current salary arrangement is violating conflict-of-interest laws, but also dramatically increase pension benefits upon retirement. We also believe that there is a lack of transparency over this arrangement. Finally, Parks improperly directed $5 million to RISF rather than depositing the funds directly in the City treasury. Although the funds eventually were returned to the City treasury (prior to the commencement of this audit), the City did not have immediate access to this money and lost approximately $109,000 in potential interest income.

Audit Recommendations

The audit makes 11 recommendations — four to RISF and seven to Parks. Among those recommendations,

RISF should:

• Ensure all City funds, including interest earned on these funds, are kept separate from RISF’s private accounts.
• Immediately transfer $293,076 to the City account.
• Repay the City the $109,000 in interest earned on MOU funds.

Parks should:

• Modify the license agreement to explicitly state that interest earned on City funds should remain in the City account designated for license revenue.
• Notify COIB of the changes to Administrator’s responsibilities and salary (including bonuses) and seek an opinion as to whether the current arrangement violates any COIB regulations.
• Establish formal guidelines for these cases which specifically documents salary parameters, justification for funding switches, job responsibilities, and other matters.
• Refer the pension issue to the Law Department for review and consideration in the context of this and any similar arrangements.
• Cease the practice of redirecting Memorandum of Understanding (MOU) funds to RISF, require that it deposit all MOU funds directly into the City treasury, and ensure the $109,000 in interest is deposited into the City’s general fund.

Auditee Response

RISF and Parks officials generally agreed with the audit’s findings and recommendations.