Follow-up Audit Report on the Compliance of Food Craft, Inc. (Worlds Fair Marina Restaurant and Banquet) with Its License Agreement and Payment of License Fees Due the City
AUDIT REPORT IN BRIEF
This follow-up audit determined whether the 12 recommendations made in the prior audit entitled Audit Report on the Compliance of Food Craft, Inc., (World Fair Marina Restaurant and Banquet) with Its License Agreement and Payment of License Fees Due the City (Audit No. FL09-067A, issued September 3, 2009) were implemented. Six of these recommendations were made to Food Craft, Inc. (Food Craft), and six were made to the New York City Department of Parks and Recreation (Parks).
The prior audit evaluated whether Food Craft was in compliance with its license agreement with Parks by determining whether Food Craft accurately reported its total gross receipts to Parks. Also, the audit determined if Food Craft properly calculated the annual license fees due the City and paid license fees when they were due. In addition, the audit determined whether Food Craft complied with certain non-revenue-related requirements of the license agreement (i.e. carried the proper types and amounts of insurance, maintained the proper security deposit, paid for its utilities, and implemented appropriate capital improvement work).
The prior audit found that Food Craft had significant internal control weaknesses over the collecting, recording, and reporting of revenue. As a result of these weaknesses, we could not ascertain whether all of the revenue earned at the Worlds Fair Marina Restaurant and Banquet was, in fact, recorded in Food Craft’s books and records, and accurately and completely reported to Parks. We also could not determine whether Food Craft paid all license fees due Parks. Furthermore, the internal control weaknesses and lack of records were so extensive as to raise red flags concerning the potential of fraud.
In addition, the audit found that Food Craft also violated provisions of New York State Labor Law and its license agreement by not distributing all service charges/gratuities collected to its wait staff. Moreover, Food Craft did not complete all the capital improvements to the licensed premises as stipulated in its license agreement.
Audit Findings and Conclusions
This follow-up audit determined that of the 12 recommendations originally made (six made to Food Craft and six made to Parks), 10 were implemented and two were not applicable. As a result, Food Craft has now corrected the internal control weaknesses cited in the previous report. It currently uses a point-of-sale system to collect, record, and report revenue over banquet and restaurant sales. Food Craft has completed all the capital improvements to the licensed premises as stipulated in its license agreement. However, another issue was noted– that Food Craft failed to charge New York State sales tax on the banquet service portion of the bill for 11 of the 27 events held in May 2011.
Audit Recommendations
To address the new issue, we recommend that Food Craft should:
- Submit the $771 New York State sales tax due on the 11 events where the additional service charges were not taxed.
- Determine whether additional taxes are due on the service charge portion for other banquet contracts.
Agency Response
In its response, Food Craft indicated that sales tax was not collected on the service charge portion of the 11 banquet contracts and that a correction was made to the system to ensure that sales tax is now collected. Food Craft also indicated that sales tax was paid on the entire month’s sales even though sales tax was not collected on the service charge portion of the banquet contracts. Parks officials agreed with the audit findings and recommendations.