Bureau of Audit

Audit Report On The Compliance Of United Nations Development Corporation With Its Lease Agreement January 1, 2005 – December 31, 2006

FN07-106A
MAY 29, 2008

AUDIT REPORT IN BRIEF

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The United Nations Development Corporation (UNDC) is a public benefit corporation established by the State of New York to provide office and residential space in an area contiguous to the United Nations headquarters.   UNDC operates under two lease agreements (collectively referred to as the “lease agreement”) with the City of New York.  The lease is administered by the New York City Economic Development Corporation (EDC) and remains in effect either until the year 2080 or until all UNDC bonds and notes are paid in full, whichever is earlier.

The lease requires UNDC to pay three separate rents to the City. The audit determined whether UNDC paid EDC all rent due the City in accordance with the provisions of the lease agreement and whether the payments were made on time; and whether UNDC complied with other major requirements of its agreement (i.e., maintaining required liability insurance and paying appropriate utility charges).

Audit Findings and Conclusions

UNDC should remit to the City a total of $12,012,050 in additional rent resulting from UNDC’s retention of its consolidated surplus in connection with the suspended UN Consolidation Building Project.  Otherwise, UNDC generally complied with the provisions of its lease agreement and maintained adequate internal controls over the recording and reporting of revenue and expenses.  It reported revenue and expenses accurately, calculated the proper amounts of base rent and net annual rent due the City, and submitted its quarterly payments on time. UNDC also adhered to certain non-revenue-related requirements of the agreement, including maintaining the proper property and liability insurance; endorsing the City and EDC as additional insured parties; and paying electric and water and sewer charges.

Subsequent to our submission of the preliminary draft audit report to UNDC officials, the UNDC Board of Directors approved a resolution to release a portion of the consolidated surplus reserve and paid the City 90 percent of that portion, or $6,006,063, in additional rent due.  UNDC now owes the City the balance of the $12,012,050 assessed by this audit, or $6,005,987.

Audit Recommendations

We make five recommendations based on our findings.  We recommend that UNDC:

• Pay the City a total of $12,012,050 in additional rent due as assessed by this audit. The UNDC Board in its March 28, 2008 meeting resolved to release $6,006,063 in additional rent.  Should this amount be remitted to the City, only a balance of $6,005,987 will be due the City, as assessed by this audit.

• Maintain an updated status of the progress of the UN Consolidation Building Project.

We recommend that EDC:

• Ensure that UNDC pays the $6,006,063 in additional rent due the City.

• Ensure that UNDC pays the balance in the consolidated surplus reserve of $12,012,050 if the UN Consolidation Building Project is not built.

• Monitor the progress related to the UN Consolidation Building Project.