Assessment of Internal Controls: The Trust for Cultural Resources of the City of New York. March 9, Review Report

Transcription

1 Assessment of Internal Controls: The Trust for Cultural Resources of the City of New York March 9, 2016 Review Report

2 Table of Contents Background and Executive Summary.. Pg 3., Business sub-processes, and Procedures Performed Pg 4. Risk Assessment, Methodology, and Controls. Pg 5. Risk Assessment and Test of Control Activities: Process of Bonds Payable (MOMA TEP Bonds.. Pg 6. Process of Bonds Payable (Current Portion). Pg 7. Process of Interest on Outstanding Bonds (MOMA TEP Bonds). Pg 8. Process of Tax Equivalency Receipts (TEPS). Pg 9. Process of Payment In Lieu of Taxes (PILOTS). Pg 10. Process of General & Administrative Expenses.. Pg 11. Distribution...Pg 12. 2

3 Background Background The Trust for Cultural Resources of The City of New York ( Trust ) is a public benefit corporation created pursuant to Articles 20 and 21 of the New York Arts and Cultural Affairs Law for the purpose of supporting cultural institutions located in New York City. Such assistance is mainly in the form of financing for institutions seeking to expand their existing facilities and increase revenues through development of their underutilized assets. Among the types of institutions assisted are museums, performing arts centers, public television stations, radio stations, and other cultural institutions. Section 2800 (1)(a)(9) and (2)(a)(9) of Public Authorities Law require all public authorities, state and local, to complete an annual assessment of the ness of its internal control structure and procedures. The Trust is included in the definition of a local authority. The Trust is governed by a board of nine trustees, and does not employ staff for daily operations. All operational and administrative activities of the Trust are performed by NYCEDC by way of an annual contract for services. Executive Summary Internal Audit has completed an assessment of the ness of the Trust s internal controls over financial reporting at the request of the Trust and NYCEDC management. Internal Audit s assessment included obtaining an understanding of the control environment in which financial reporting is produced and testing control activities including documentation, initiation, review, authorization, and approval of transactions and accounting entries. Based on our assessment of 6 control objectives for financial reporting, we found that controls were. Note: Management is responsible for establishing and maintaining adequate internal control over financial reporting. The ness of specific controls is subject to inherent limitations and accordingly, errors or fraud may occur and not be detected. Also, projections of any conclusions to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or due to diminished compliance with policies and procedures. 3

4 , Sub-Processes, and Procedures Performed Objective To assess the overall ness of internal control over financial reporting of the Trust for Cultural Resources of the City of New York to ensure that NYCEDC s operating processes provide reasonable assurance that the financial reporting is reliable. Business Sub-Process Recording of bond information and related transactions. Processing of Payments In Lieu of Taxes (PILOTS) and receipts of Tax Equivalency Receipts (TEPS). Processing of the general and administrative expenses. Procedures Performed Based on our review of the Trust s contract with NYCEDC and key documents governing trust activities including Articles 20 and 21 of the New York Arts and Cultural Affairs Law and the Trust s own By-Laws, and interviews with key personnel, we gained an understanding of the Trust s corporate governance structure and control environment. Identified the significant accounts, relevant assertions, and significant processes impacting the financial statements. Obtained an understanding of the flow of transactions related to the relevant assertions, including how these transactions are initiated, authorized, processed, and. Identified risks for processes affecting the accounts ("What Can Go Wrong? questions) and identified the controls that management has implemented to address those risks. Tested and evaluated the design and operating ness of internal controls for significant accounting processes through performance of walkthroughs of selected transactions, examination of relevant documents supporting the reporting processes and observance of accounting operations. 4

5 Risk Assessment Methodology and Controls Risk Assessment Methodology In making our assessment, we utilized the criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that the Trust s internal control structure and procedures for financial reporting is as of December 31, Control Activities Control activities are policies and procedures that help ensure that necessary actions are taken to address the risks to achieve the control objectives. IA identified and ranked potential risks associated with selected Trust accounting processes, and tested the operating ness of the control activities in place to mitigate any risks. Risk Assessment and Test of Control Activities section of the report (pages 6-11) discuss the control activities for selected significant accounting processes to achieve their control objectives. 5

6 Risk Assessment and Test of Control Activities 1. Process of Bonds Payable (MOMA TEP Bonds) Risk Analysis Control Bond information is accurately and timely. Risk Factors Impact Likelihood Actions, Control Activities Other Affected Failure to record necessary information for accurate financial recording. Bond interest paid is not in the books timely and accurately. High The Financial Reporting Manager ( FRM ) works closely with the Trust s Bond Counsel relating to bond issuance for timely receipt of the Official Statements and other bond documents in print and electronic copies. From these documents, the FRM prepares Schedule of Financings summarizing the bonds financial information to back up the accounting entries in TCR books. The schedules are reviewed and signed by the Controller. High Trust books are reconciled monthly against the trustee's bank statements to support the accounting entries relating to the bond issuance and interest payments to ensure completeness and accuracy of the books accounting entries. The entries are prepared by FRM, bank reconciliations are prepared by staff in the Cash Department, and then reviewed and signed by the Controller. Annually, the Trust's external auditor performs confirmation audit procedures and recalculations of general ledger balances. Interest payments are accurately in the Trust books. Interest payments are accurately in the Trust books. Evaluation and Conclusion 6

7 Risk Assessment and Test of Control Activities 2. Process of Bonds Payable Current Portion Risk Analysis Control Risk Factors Impact Likelihood Actions, Control Activities Other Affected Evaluation and Conclusion Bonds maturing in the current year are classified as current in the statements. Current Bonds Payable are not as current. High To assist in monitoring current bond liabilities, the FRM prepares a Sinking Fund Redemptions schedule based on the Official Statement at the issuance of the bond. This schedule serves as back up documentation in the reclassification of the bond entries at the end of the year. The schedule is reviewed and signed by the Controller. Long-Term Bonds Payable are accurately. 7

8 Risk Assessment and Test of Control Activities 3. Process of Interest on Outstanding Bonds (MOMA TEP Bonds) Risk Analysis Control Risk Factors Impact Likelihood Actions, Control Activities Other Affected Evaluation and Conclusion Bonds maturing in the current year are classified as current in the statements. Current Bonds Payable are not as current. High Similar to control activities of other bonds, the FRM prepares a Sinking Fund Redemptions schedule based on the Official Statement at the issuance of the bond. This schedule serves as back up documentation in the reclassification of the bond entries at the end of the year The schedule is reviewed and signed by the Controller. Long-Term Bonds Payable are accurately. 8

9 Risk Assessment and Test of Control Activities 4. Process of Tax Equivalency Receipts (TEPS) Risk Analysis Control Risk Factors Impact Likelihood Actions, Control Activities Other Affected Evaluation and Conclusion Tax Equivalency Payments or TEPs are accurately calculated and billed to tenants, receipts are safeguarded, properly allocated to accounts, and reconciled to billings. TEPs are based on inaccurate information, payments are not accounted for, not billed timely, payments not reconciled to billings. High The Trust collects an amount equal to property taxes, called TEPS, from the condominium owners at the MOMA Residential Tower, based on the tax assessment of the units by NYC Department of Finance (DOF) that are documented in the Assessment Roll Schedule (ARS) provided to FRM. The billings are sent twice a year, January 1 st and July 1 st, by FRM. Property owners remit their payments by mail to a JPMorgan Chase lock box address. A staff accountant accesses the lock box and records the receipts; other staff performs the bank reconciliations. The billings, recording, and reconciling processes are performed by different individuals, and reviewed by the Controller. Accounts Receivable - TEPS and PILOT payments are accurately. Tenants in arrears are followed up. Nonpayment from delinquent tenants High For past due accounts, the FRM sends past due notices during the year. For accounts that are habitually delinquent and with arrears of more than $25,000, the FRM provides the Trust s Counsel with the account statements for legal action. The FRM also works closely with MOMA's real estate agent for units that are closings during the period, so the unit billings can be adjusted accordingly. FRM prepares a monthly aging report for management information and monitoring. Delinquent tenants are ly followed up. 9

10 Risk Assessment and Test of Control Activities 5. Process of Payment In Lieu of Taxes (PILOTS) Risk Analysis Control Risk Factors Impact Likelihood Actions, Control Activities Other Affected Evaluation and Conclusion To remit accurate PILOT payments to Department of Finance. PILOT payments are not accurately calculated. High The FRM prepares an analysis schedule and calculations of PILOT expenses twice a year based on DOF tax assessment information provided to FRM relating to MOMA Residential Tower condominiums. The schedule supports check payments made to DOF. The Controller reviews and signs the calculation and payment documents. Account Receivable - TEPs are accurately calculated and billed. 10

11 Risk Assessment and Test of Control Activities 6. Process of General & Administrative Expenses Risk Analysis Control Risk Factors Impact Likelihood Actions, Control Activities Other Affected Evaluation and Conclusion To record all general and administrative expenses correctly, completely and timely. Payment of unauthoriz ed and undocume nted expenses Expenses are not taken up in the right period. Most of the general and administrative expenses are predetermined based on the contractual amounts and yearly vendor bills. The FRM prepares an analysis sheet on a quarterly basis showing expense allocations for each institution to support journal entries. The analysis sheet is reviewed and signed by the Controller. The NYCEDC Accounting and Finance unit maintains a Policy and Procedure Accounting Manual describing ongoing and periodic tasks, responsibilities, and procedures. The manual helps ensure that the required periodic accounting activities are performed timely and relevant costs are allocated for each institution and booked in the right period. Accrued Expenses are accurately. 11

12 Distribution. Presidents Office Maria Torres-Springer, President & CEO Kim Vaccari, Chief Financial Officer Finance Department Spencer Hobson, Executive Vice President Fred D Ascoli, Controller Carol Ann Butler, Financial Reporting Manager Internal Audit Department Bruce Rollins, Senior Vice President Stella Maniago, Vice President Romeo Rancio, AVP (Lead Auditor) EFPR GROUP, CPAs Joseph Klimek, Partner Brent Jensen, Manager 12