Follow-up Audit Report on the Financial and Operating Practices of the East Brooklyn Industrial Park Business Improvement District

SUMMARY OF FINDINGS AND CONCLUSION

This is a follow-up audit to determine whether the East Brooklyn Industrial Park Business Improvement District (East Brooklyn BID) implemented the recommendations made in an earlier audit, Audit Report on the Financial and Operating Practices of the East Brooklyn Industrial Park Business Improvement District (Audit No. MD00-201A, issued June 21, 2001). The earlier audit covered the BID’s activities for Fiscal Year 1999 and the first five months of Fiscal Year 2000, and assessed the East Brooklyn BID’s compliance with its District Plan and Department of Business Services (DBS) contract. The audit also evaluated the adequacy of the BID’s internal controls over its funds and operations. This follow-up report discusses the details of the recommendations of the previous audit report as well as the status of each recommendation as of December 31, 2001.

The previous audit made two recommendations to DBS and 25 recommendations to the East Brooklyn BID. Of the 27 recommendations, 21 were implemented, three were partially implemented, two were not implemented, and one was no longer applicable. These recommendations and their current implementation status are as follows:

1. DBS should perform a complete evaluation of the East Brooklyn BID in the context of this report’s findings.
2. DBS should either put the BID on probation during this evaluation, or take more immediate action terminating all contracts and the collection of member assessments.

The East Brooklyn BID should:

3. Ensure that assessment funds are spent only on East Brooklyn BID-specific programs.
4. Show evidence that East Brooklyn BID-specific programs actually benefited BID businesses.
5. Ensure that the East Brooklyn BID’s annual reports reflect only services that impact BID businesses.
6. Ensure that East Brooklyn BID program funds are spent as intended by requiring LDCENY [Local Development Corporation of East New York] to submit periodic program and financial activity reports.
7. Re-evaluate its programs to ensure they address the needs and concerns of the East Brooklyn BID’s businesses.
8. Discuss any proposed changes in programs with its Board of Directors and ensure that these discussions are documented.
9. Ensure that it recruits Board members who are willing to become actively involved with the management of the BID.
10. Either follow the Code of Professional Standards and Practices [of the New York City Bid Managers Association] and establish the appropriate committees, or establish its own policies and procedures for monitoring the BID’s fiscal and program activities. .
11. Ensure that important decisions are discussed in Board meetings and documented in minutes. If a quorum is not present in the meeting or if decisions are taken without a meeting, written consent authorizing the action should be obtained from each and every Director. .
12. Have its Board of Directors discuss the decisions cited in this report. These discussions and any determinations made should be documented in the minutes to the meeting.
13. Ensure that it does not pay any separate accounting fees to LDCENY, since these charges are covered under its administrative contract.
14. Ensure that its payments to LDCENY are in accordance with their administrative agreement.
15. Ensure that the Board approves all Budget Modifications.
16. Ensure that its annual reports accurately reflect its financial records.
17. Revise the financial information on its 2000 Federal and State tax forms.
18. Ensure that the financial information it reports on its Federal and State tax forms are correct and consistent with its financial records.
19. Ensure that it files the Schedule A (Organization Exempt Under § 501(c)(3)- Supplementary Information).
20. Ensure that the responsibilities over the authorizing and processing of receipts and disbursements are adequately segregated. .
21. Ensure that financial records are maintained on an ongoing basis.
22. Ensure that former employees do not have access to or be allowed to sign East Brooklyn BID checks.
23. Ensure that transactions are recorded accurately and on a timely basis.
24. Ensure that bank reconciliations are done on a consistent and accurate basis.
25. Investigate payments made to the former CPA for prior work.
26. Correctly classify its functional expenses in the financial statements.
27. Properly record its physical assets in its financial records.

This follow-up audit found that the East Brooklyn BID has improved its internal controls over its funds and operations. However, the BID needs to make a more concentrated effort to ensure that its programs meet BID members’ needs, and it should continue to recruit new Board members. The BID’s 2001 annual report, like the previous annual reports, included programs that were not BID-specific and contained inconsistencies in its reported expense figures. Also, there is still no control over the timing of payments made to LDCENY for its administrative services.

To address the problems noted in this report, DBS and the East Brooklyn BID should implement the five recommendations of the previous audit that were not fully addressed. We believe that upon implementation of these recommendations, DBS and the East Brooklyn BID will have corrected the conditions cited in both the previous report and this follow-up report. The recommendations are repeated below, four of them somewhat revised in accordance with the findings of this report.

1. DBS should continuously monitor the East Brooklyn BID to ensure that it complies with all the recommendations of the previous audit report and this follow-up audit report.

The East Brooklyn BID should:

2. Re-evaluate its programs to ensure that they address the needs and concerns of the East Brooklyn BID’s businesses.
3. Recruit Board members who are willing to become actively involved with the management of the BID and ensure that all required classes of members are represented on the Board.
4. Amend its administrative agreement with LDCENY to include payment terms.
5. Ensure that its annual reports accurately reflect its financial records.

The matters covered in this report were discussed with DBS and East Brooklyn BID officials during and at the conclusion of this audit. A preliminary draft report was sent to DBS and East Brooklyn BID officials and discussed at an exit conference held on May 7, 2002. On May 13, 2002, we submitted a draft report to DBS and East Brooklyn BID officials with a request for comments. DBS officials declined to comment on the report. We received a written response from the East Brooklyn BID on May 28, 2002. In their response, BID officials stated:

"Please note that we are requesting that the current status of recommendations #7, 9 and 14 be revisited and that our attached response be incorporated into the final report.

"Thank you for this opportunity and as you can see the East Brooklyn District Management Association (EBDMA) has undertaken many, if not all, of the Comptroller’s previous recommendations. By incorporating these important recommendations the EBDMA has become programmatically stronger and more accountable in our day-to-day dealings."

As requested by BID officials, we re-examined the current status of recommendations #7, #9, and #14. However, for reasons discussed in the body of the report, we stand by our recommendations as presented