Follow-up Audit Report on the Compliance of South Beach Restaurant Corporation with Its License Agreement

AUDIT REPORT IN BRIEF

REPORT IN BRIEF

This follow-up audit determined whether the four recommendations made in the previous audit entitled Audit Report on the Compliance of South Beach Restaurant Corporation With Its License Agreement (Audit No. FM09-091A, issued March 18, 2010) were implemented. Two of those recommendations were made to the South Beach Restaurant Corporation (SBR&C) and two were made to the New York City Department of Parks and Recreation (Parks).

The prior audit evaluated whether SBR&C maintained adequate internal controls over the recording and reporting of its gross receipts derived from its restaurant and catering operation.

The prior audit found that SBR&C did not maintain adequate controls over the recording and reporting of its restaurant gross receipts processed through its computerized point-of-sale (POS) system, did not include $172,209 in revenue from preferred vendors in its monthly reported gross receipt statements to Parks, and did not maintain adequate records or contracts for this revenue. Our review of SBR&C’s internal controls over its restaurant operations revealed certain weaknesses in the design and operation of the POS system. Specifically, the POS system did not guarantee the generation of sequentially numbered checks and the system’s compensating control feature (non-resettable total)1, designed to ensure the integrity of the restaurant’s financial transactions contained small but noteworthy discrepancies. We found no evidence of wrongdoing, but the limitations of the POS system prevented us from being reasonably assured that all restaurant income was reported to Parks.

Consequently, SBR&C owes Parks $6,888 in additional fees. Subsequent to the issuance of the prior report, SBR&C paid the $6,888 that was due.

Audit Findings and Conclusions

The current follow-up audit disclosed that SBR&C implemented one recommendation and partially implemented the other recommendation. SBR&C has improved its internal controls over guest check revenue reporting. The restaurant’s POS system produces Manager Activity Reports that now account for any check number not included in the Sales Journal Report. SBR&C has also improved its internal controls over preferred vendor revenue reporting, but still does not maintain contracts for all of its preferred vendors. We found that Parks implemented both recommendations made in the prior report.

Audit Recommendation

To address the issue from the previous audit that still exists, we recommend that SBR&C officials maintain on file a contract for every preferred vendor that it does business with.

Agency Response

In its response, SBR&C agreed with the audit’s findings and recommendations and described the steps it has taken to implement the report’s recommendation. Parks officials agreed with the audit findings and recommendation.