THE CITY OF NEW YORK OFFICE OF THE COMPTROLLER BUREAU OF FINANCIAL AUDIT

AUDIT REPORT ON COMPLIANCE OF QUINN RESTAURANT CORPORATION (WATER’S EDGE RESTAURANT) WITH ITS LEASE AGREEMENT AND PAYMENT OF RENT DUE THE CITY

FL08-088A
November 6, 2008

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The Department of Citywide Administrative Services (DCAS) has a lease agreement with the Quinn Restaurant Corporation (Quinn) to construct, operate, and maintain a restaurant on the Nott Avenue Pier at the foot of 44th Drive and the East River in Queens. Quinn subsequently constructed a restaurant, Water’s Edge, at the site. The agreement also requires that Quinn post a $25,000 security deposit with the Comptroller’s Office; maintain certain types and amounts of insurance coverage; submit quarterly statements of gross receipts to DCAS; and pay all required taxes and utility charges related to the leased premises. According to the license agreement, gross receipts consist of all revenue, excluding collected sales taxes and gratuities paid directly or indirectly to employees in addition to their regular salaries.

This audit determined whether the Quinn accurately reported its total gross receipts; properly calculated the rent due the City and paid the rent on a timely basis; and complied with certain non-revenue-related requirements of the lease agreement.

Audit Findings and Conclusions

Quinn was unable to demonstrate that it had accurately reported its total gross receipts to DCAS and paid the appropriate rent due the City since it did not issue pre-numbered banquet contracts; lacked banquet invoices; and lacked or had canceled guest checks. As a result, we were unable to reach a determination about the accuracy of Quinn’s reported gross receipts and payment of appropriate rent to the City. Therefore, because of these internal control weaknesses over the restaurant and banquet operations, we found that Quinn was not in compliance with major provisions of its lease with the City.

Based on the documentation that was provided, however, we concluded that Quinn improperly deducted $507,249 in service charges from its gross receipts as “gratuities” to its employees and did not include $604,620 in gross receipts from the sales of its florist, photographer, and musicians in the gross receipts it reported to DCAS. At a minimum, Quinn therefore owes the City $86,034—$69,309 in rent and $16,725 in late charges. Furthermore, Quinn did not remit rent payments to DCAS on time; owes $77,453 in water and sewer charges and $43,506 to ConEdison; failed to remit the full amount of its required security deposit; and failed to maintain the pier (public access area) to such an extent that it is hazardous and closed to the public. Given the past gross delinquency of this concessionaire in paying its fees and complying with the terms of the lease agreement, it may be in the best interest of the City to terminate the lease agreement and award it a more responsible entity.

Audit Recommendations

We make 16 recommendations, eight to Quinn and eight to DCAS, concerning the operation of Water’s Edge and the oversight of this lease by DCAS. Compliance with these recommendations will ensure that DCAS collects from Quinn all rent that is due; controls over the operations of Water’s Edge are adequate to ensure that all gross receipts collected by Quinn are reported to DCAS; Quinn deducts from gross receipts only those items specified in the lease agreement; Quinn complies with other major provisions of its lease agreement related to paying its utilities, maintaining the required security deposit and maintaining the public access area in good condition.