Follow-up Audit Report on the Compliance of Statue Cruises, LLC with Its License Agreement

EXECUTIVE SUMMARY

The objective of the audit was to determine whether Statue Cruises, LLC (Statue Cruises) and the Department of Parks and Recreation (Parks) implemented the recommendations made by the New York City Comptroller (the Comptroller) in a prior audit report, Audit Report on the Compliance of Statue Cruises, LLC with Its License Agreement, Audit No. FM12-122A, issued on July 2, 2013.

On December 12, 2007, New York City (the City), through Parks, entered into a 10-year license agreement with Statue Cruises for the operation and maintenance of three landing facilities in Battery Park, Manhattan, at slips 3, 4, and 5, and adjacent walkways.  Statue Cruises uses these three slips to operate passenger ferries between Battery Park and Liberty and Ellis Islands, national landmarks operated by the National Park Service.  Approximately four million people visit these locations each year. The National Park Service has a contract with Statue Cruises to transport passengers between Battery and Liberty State Parks and to allow those passengers to disembark onto Liberty and Ellis Islands.  Also, in accordance with its license agreement with Parks, Statue Cruises offers day and night charter boat services around the New York harbor from slips 1 or 2 in Battery Park.

In the Comptroller’s prior audit of Statue Cruises, the audit found that Statue Cruises did not have adequate internal controls to properly account for its revenue reporting activities.  Consequently, the prior audit could not determine whether all revenue had been reported accurately.  However, the audit found that, at a minimum, Statue Cruises underreported revenue by at least $809,926 and owed the City $83,369 ($64,794 in additional license fees plus $18,575 in late fees).  The prior audit also found that Statue Cruises had not paid certain City and State taxes since 2008 because it claimed an interstate commerce exemption which had not previously been asserted by a predecessor company using the same routes.  If Statue Cruises’ tax position is found to be incorrect, this could result in a multi-million dollar tax liability for the company.  The prior report made eight recommendations, three to Statue Cruises and five to Parks.

Audit Findings and Conclusion

In this follow-up audit, we assessed the implementation status of the eight recommendations made in the prior audit report. Of those recommendations, we determined that one recommendation was implemented, four recommendations were partially implemented, two recommendations were not implemented,  and one recommendation is no longer applicable.  Of the internal control weaknesses disclosed in the prior audit, this audit found that Statue Cruises has still not completely resolved its internal control issues related to missing ferry ticket numbers, it does not use pre-numbered charter events invoices, and it persists in not fully separating its New York City operations from its New Jersey operations in its financial books and records.  In addition, Parks did not conduct periodic reviews of Statue Cruises’ internal control procedures as recommended.  Consequently, we cannot be reasonably assured of the completeness of Statue Cruises’ reported gross revenue and its payment of license fees.  With regard to the tax exemption claimed by Statue Cruises for the City and State general corporation taxes, this audit determined that while Parks referred the matter to the Department of Finance (DOF) as recommended in 2013, there has been no resolution by DOF and no recent follow-up action by Parks.

Audit Recommendations

To address the issues that still exist, we recommend that Statue Cruises:

• Resolve the issue of missing ticket numbers identified in this report.
• Hire a fiscal consultant to review the internal controls to ensure the completeness of reported gross revenue.

To address the issues that still exist, we recommend that Parks:

• Ensure that Statue Cruises implements the recommendations made in this report.
• Include within its Audit Plan a periodic review of whether Statue Cruises maintains an adequate system of internal controls, reports all revenue, and pays the appropriate license fees.
• Submit a formal follow-up request to the Commissioner of DOF requesting an expedited resolution on the outstanding tax issue.  If it is determined that Statue Cruises must pay the necessary tax, Parks, in conjunction with DOF, should ensure immediate payment of any taxes, interest, and penalties that may be assessed.

Statue Cruises and Parks Responses

Statue Cruises officials generally agree with the report’s conclusions and recommendations, although they contend that Statue Cruises’ existing financial controls make it unnecessary for it to issue pre-numbered invoices.  They further state that they have already taken actions to begin implementing the two recommendations made in this audit report.  Parks officials generally agree with the report’s conclusions and recommendations.