Annual Audit Report Fiscal Year 2006

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March 1, 2007

Mayor Bloomberg, Speaker Quinn, and Members of the City Council:

I am pleased to transmit the Charter-mandated report on the New York City Comptroller’s audit operations for Fiscal Year 2006.  My audit bureaus issued 80 audits and special reports during the fiscal year that resulted in $6.3 million in actual revenues and savings and $19.1 million in potential revenues and savings.  Reviews of claims filed against the City identified another $6.6 million in cost avoidance. Audits for the development and implementation of computer systems by City agencies identified cost overruns of $3.6 million caused by poor project management.  This annual report contains the significant findings and recommendations of the Comptroller’s audit activities during Fiscal Year 2006. 

I entered office determined to be an activist Comptroller by aggressively using the powers of my office to find new, creative ways to save the taxpayer money and to put our resources to work for all New Yorkers. I instructed the audit bureaus to focus their efforts on those aspects of City operations that would maximize revenues and cost savings and also improve the quality of life for our residents.  During the last five years, the audit bureaus have met this challenge with great success by examining programs with the greatest potential risk of revenue loss, cost overruns, mismanagement, inefficiency, waste, and abuse.  The 497 audits and special reports conducted from Fiscal Year 2002 through Fiscal Year 2006 have generated a total of $197.6 million in actual and potential revenues and savings.  The following chart illustrates the actual and potential revenues and savings generated each year by the Comptroller’s auditors and the cumulative amount of these revenues and savings.  

$197.6 Million in Cumulative Savings Achieved
Fiscal Years 2002 through 2006

The audits issued by my office in Fiscal Year 2006 covered a wide range of subjects, including revenue identification and collection, cost savings, program performance, asset management, internal controls, and information technology.

Brief descriptions of audits that generated the most actual and potential revenue and savings follow:

• An audit of the City’s franchise agreement with Telebeam Telecommunications Corporation (Telebeam) to install, operate, repair, maintain, upgrade, remove, and replace public pay telephones disclosed that Telebeam did not ensure that its media representatives properly reported their total net commission advertising revenue, nor did they correctly calculate and pay fees owed the City. Telebeam’s media representatives underreported $4.8 million on behalf of Telebeam and another $11.4 million on behalf of the other 14 public pay telephone operators who together with Telebeam owe the City $5.2 million. Of this amount, Telebeam owes $1.5 million in fees and related interest.

• An audit of the Department of Housing Preservation and Development’s (HPD’s) administration of the Section 8 program, a federally-funded housing-subsidy program, found instances of case files lacking required documentation.  As a result, the auditors could not determine whether families were eligible for benefits, whether landlords received appropriate payments, or whether required annual inspections and recertifications were conducted, as required by HPD guidelines. The auditors estimated that $5,525,493 of $101,900,572 Section 8 funds paid to landlords was questionable.

• An audit of Homes for the Homeless, Inc., (HFH) disclosed that the non-profit organization violated some key provisions of its contract with Department of Homeless Services (DHS) to provide temporary housing and related services to homeless families at the Saratoga Family Inn (Saratoga). HFH did not comply with DHS contract provisions relating to payment procedures, leading to $1,055,339 in excessive charges at Saratoga for Fiscal Year 2004.  Those excessive charges included $916,855 that was related to the provision of services to clients housed in 33 rooms at Saratoga not covered under the contract with DHS.  Also, HFH did not consistently comply with its contract provisions on social services, such as those relating to maintaining health-screening documentation, permanent housing assistance, and employment services.   

• Audits of the tax classification of real property in the boroughs of Staten Island and Manhattan disclosed that the Department of Finance (DOF) did not have adequate procedures in place to ensure the correct classification of mixed-use properties in those boroughs that are listed as Class 1 on the assessment rolls.  The auditors identified 80 properties that appeared to be misclassified.  DOF could have billed an additional $1,781,558 in real estate taxes had those properties been correctly classified on the assessment rolls.

• An audit of the Department of Education’s (DOE’s) administration of the revenues and expenses of the Pupil Transportation Retainage fiduciary account found that DOE failed to properly reconcile the account, as required by Comptroller’s Directive #27.  As a result, on June 30, 2005, the account contained $3,071,833 in excess funds that should have been remitted to either the City’s general fund or to various vendors.  Of this amount, $1,426,018 was erroneously transferred to the fiduciary account from the City’s general fund; $1,292,931 should have been transferred from the fiduciary account to the City’s general fund; and $352,884 should have been disbursed to 24 vendors.  DOE established the Pupil Transportation Retainage fiduciary account in connection with its provision of school bus transportation to eligible students.

• An audit of the compliance of Staten Island Minor League Holdings, LLC (SI Yankees) with its lease with the New York City Economic Development Corporation (EDC) found that the SI Yankees owed the City $570,202.  This assessment against the SI Yankees was for not reimbursing EDC for electricity use; not paying the City for water and sewer charges; and not making certain payments on time that resulted in late charges being due. 

• An audit of the compliance of the USTA National Tennis Center Inc., (USTA) with its lease agreement with the City disclosed that USTA understated its revenue to the City by $31,185,978. Consequently, the USTA owed the City $311,860 in additional percentage rent.  Under the lease, USTA is required to pay an annual base rent of $400,000 plus percentage rent—one percent of the gross revenue in excess of $25 million that is derived directly from or in connection with the facility.  USTA understated revenue in a number of revenue categories, such as Broadcasting, Sponsorship, Hospitality, Sponsorship Benefits, and Food Concession. 

• An audit of the compliance of Concord Family Services, Inc., (CFS) with its foster-care contracts with the Administration for Children’s Services (ACS) found that CFS did not spend certain funds efficiently and lacked some supporting documentation for its expenditures.  In fact, during Fiscal Year 2004, ACS paid CFS $195,335 more than was due according to the supporting documentation for the days-of-care provided to foster children over this period.  Other weaknesses uncovered included the lack of case files and of supporting documentation; expenditure of excessive amounts on clothing; lack of accountability over the purchase and distribution of children’s clothing; insufficient oversight of CFS by its Board of Directors; and operating with a budget deficit in each of the previous four fiscal years. 

Brief descriptions of audits that disclosed the most significant service-delivery and program-performance issues follow:

• An audit of the compliance of the Salvation Army (SA) with its contract to operate and manage Carlton House, a 335-unit transitional housing facility for homeless families, found that SA did not comply with certain contract terms. SA did not ensure that the Carlton House was maintained in a safe and sanitary condition, and it did not maintain documentation indicating that tenant units were inspected regularly. In addition, SA commingled funds received from DHS with funds from other SA programs; made payments from its general account that were not fully supported by the documentation in its files; paid for items that were not delivered to Carlton House; paid employees $77,820 for work hours that were undocumented; and did not maintain an inventory list of equipment or affix inventory tags to equipment. Also, DHS did not amend the contract and submit an amendment to the Comptroller for registration when it chose to increase the daily rate it paid SA, contrary to the City’s Procurement Policy Board rules.

• An audit of the compliance of the Animal Care and Control of New York City with its contract with the Department of Health and Mental Hygiene (DOHMH) to care for the City’s entire homeless and unwanted animal population found that although shelter conditions were adequate, certain aspects of the operation could be improved.  Cleaning procedures were not always followed; and timelier cleaning of adoption wards, spot cleaning of cages, and proper drying of floors could improve cleaning.  The audit noted that other improvements could be made in the following areas: shelter security, investigations of animals missing from shelters, the isolation of sick animals from healthy animals, and walking of dogs to ensure their proper exercise. 
• A follow-up audit of the DOHMH Enhanced Pest Control Program found that DOHMH did not implement a recommendation from a previous audit that it have adequate procedures in place to ensure that complaints are addressed in a timely manner.  The follow-up audit found that Office of Pest Control Services (PCS) had no procedures to ensure that duplicate complaints are adequately researched and the relevant job tickets closed.  The audit concluded that the absence of established performance-time standards limited PCS’s ability to monitor the timeliness of the completion of the critical tasks in the pest control process.

• An audit of the controls over payments by ACS to its five transportation service vendors found a number of internal control weaknesses that could result in ACS paying vendors for transportation services not provided.   In Fiscal Year 2005, ACS paid $2.93 million for vehicular transportation services to its five vendors.  ACS failed to make sure that drivers and their vehicles were at their designated sites as indicated in vendors’ daily shift schedules. Further, ACS’s Transportation Voucher System (TVS) revealed that trip-data field information in TVS was either lacking or incorrect.  Moreover, ACS did not obtain backup documentation to confirm that trips using school buses and coaches actually took place when it conducted its prepayment audit of invoices.  

• An audit of the Civilian Complaint Review Board (CCRB) investigations of police misconduct complaints found that the CCRB did not consistently perform certain required steps in conducting its investigations. Many case files lacked required investigative case plans and time-triggered progress reports. In addition, some of the plans and progress reports that were prepared were not reviewed by supervisors, indicating that CCRB was not consistently using important management tools to ensure efficient, thorough, and fair investigations.  

Brief descriptions of audits at a number of agencies or public entities identified significant deficiencies in internal controls and asset management follow:

• An audit of the use of procurement cards (p-cards) by the Department of Parks and Recreation (Parks) found that Parks had inadequate controls over the use of p-cards. The weaknesses in controls could allow the inappropriate use of p-cards and the issuance of duplicate payments. Parks lacked adequate written procedures for the correct use of p-cards, did not sufficiently train new cardholders in p-card use, and permitted individuals other than the cardholders to use the cards.  In addition, the Accounts Payable Unit could not adequately review p-card purchases because of incomplete documentation, problems with approvals, and the absence of a log of purchases. Parks internal controls also failed to prevent the splitting of some purchases to avoid exceeding transaction limits, the incorrect payment of sales taxes, and the execution of purchases without first checking requirement contracts. 

• An audit of the administration of job order contracts (JOC) by DOE disclosed significant weaknesses in the management of the program.  JOC is a procurement method for expeditiously performing maintenance, repairs, and minor construction work.  The audit found that DOE did not have adequate procedures to ensure that required project documentation was submitted and approved. Moreover, DOE lacked any written policies or guidelines that spell out the circumstances—including a monetary threshold—under which the use of job order contracting is appropriate. Further, DOE has not ensured that inspections of proceed-order work are adequately conducted and documented by reports, daily logs, and photographs. These weaknesses in program controls led to contractors: being assigned work outside their contract locations; not completing all required work; not performing work satisfactorily; and not completing work on time.

All City agencies rely on information technology to help perform the tasks necessary to maintain mission-critical operations.  Over the past decade, the City has spent a significant amount of taxpayer dollars on information technology.  In light of these developments, I have continued to dedicate a portion of the bureaus’ resources to audits of system-development projects.  Many of these audits identified computer systems that were developed with excessive cost overruns, that missed deadlines, and that simply did not meet agency needs. Brief descriptions of some of these audits follow:

• An audit on the user-access controls of the New York City Housing Authority (NYCHA) Tenant Selection System (HATS) and Tenant Select and Assignment Plan System (TSAP) found that the two systems were not integrated.   The lack of system integration may allow for manipulation of the data so that ineligible applicants could be deemed eligible and placed in NYCHA housing. Further, there were 3,920 instances in which applicants listed as certified in HATS should have appeared on the TSAP database but did not. This raised the possibility that eligible applicants might not have been offered NYCHA housing when it was available for them.  In addition, there were a number of operational and application-control weaknesses that may expose both systems to unauthorized access. Among specific weaknesses, NYCHA did not terminate the HATS and TSAP user accounts of some former employees, and there were no formal procedures to ensure that each active HATS user had only the necessary access and user privileges required to complete the designated tasks for that user’s job functions.  

• An audit of the Legal Tracking System (LTS) of ACS disclosed problems with the development and implementation of the system.  Specifically, the system was not completed as scheduled.  The auditors could not determine whether LTS, as a finished product, met the initial business and operating requirements or the overall goals as stated in the system-justification description.   In addition, there were deficiencies in the formal systems-development methodology used when developing LTS.  This led to delays in development that increased project costs from an estimated $5.6 million to $9.2 million as of March 2005.  The auditors also noted that the access controls of LTS needed improvement, and data converted from a prior system were often found to be inaccurate and lacking certain data.   Also, ACS did not incorporate LTS into its disaster recovery plan, as required. 

• An audit of the management of the City Geographic Information System (GIS) and its Citywide projects by the Department of Information Technology and Telecommunications (DoITT) disclosed that DoITT is adequately monitoring and managing Citywide GIS projects. However, a Citywide standard does not exist concerning geospatial data.  Consequently, DoITT has been adhering to federal industry-wide “best practices” guidelines as criteria when monitoring the project.  In addition, DoITT has adequate provisions for regular backup of GIS information, a disaster recovery procedure, and contingency plans. Although DoITT has adequate security controls in place to ensure that its GIS data is protected from unauthorized access, the auditors also found one control weakness regarding the lack of reassessing user-access rights that resulted in continuing access authorization for individuals who no longer needed it. 

Over the past five fiscal years, my audit bureaus have identified almost $198 million in actual and potential revenue and savings, and have documented many instances of program inefficiency and mismanagement.  For the remainder of my tenure as Comptroller, I will continue to deliver on my commitment to maximize revenue while reducing costs and improving the quality of City services and programs. 

Very truly yours,

William C. Thompson, Jr.