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SanFilippo Says Marina Audit Finds Serious Lack Of Controls

Buffalo City Comptroller Andy SanFilippo announced today that an audit of the Erie Basin Marina, operated by Brand-On Services, Inc., under a lease agreement with the city, has found a serious lack of internal controls in all revenue generating areas, prompting concerns about the accuracy of payments to the city under terms of the lease.

 “While the vendor, Brand-On Services, should receive credit for the significant increase in sales at the Marina from 2004 to 2007, internal controls over these greater revenues is totally inadequate in all of the revenue generating areas,” said Comptroller SanFilippo.

 “We found deficiencies in recordkeeping in the purchase of food, in boat launching, in slip rentals, and in fuel sales,” said the comptroller.  “There was also a failure to maintain an up-to-date slip renters’ register.  Taken in total, with revenue of more than $1.3 million during our audit period of May – October, 2007, the failure of Brand-On to address these problems (cited in a 2005 audit) is extremely troubling and there needs to be major changes in all areas going forward.   I believe that as a result of this audit, those changes are being made.”

 Under terms of the lease agreement, the Marina consists of a boat harbor, marina, and multi-purpose recreational and food service facility known as The Hatch.  Prior to the management agreement with Brand-On, Erie Basin Marina had been operated by employees of the Department of Public Works, Parks and Streets which still maintains oversight authority.  The current lease, which has been extended twice, will expire in 2016 if all extensions are exercised.  The spouse of the president of Brand-On is employed by the Department of Public Works.

 The initial agreement between the city and Brand-On began on May 1, 2001, and since that time changes have been made to the city’s take from fuel sales, the daily slip rate for transient boats and the daily boat launching rate, all without evidence of the written approval of the commissioner of Public Works and the Common Council.  

The audit, which was conducted under the direction of City Auditor Darryl McPherson, recommends that in the future, any proposed changes in fee structure should first be authorized by the Common Council and that the vendor be advised that it does not have unilateral pricing authority and that individual deal-making should stop immediately.  

Among the changes that were made to the original agreement without proper approval include a change in the city’s portion of revenue from fuel sales from 10 percent of all fuels sales to $.10 per gallon, by letter agreement.  Also, the daily slip rate for transient boats was increased from $1.70 per foot in 2006 to $1.90 per foot in 2007.  The daily boat launching rate was also increased in 2007, without approval from $5 per launch to $7 per launch.

 A review of on-site records also found that Brand-On would exercise certain discretion in renting to transients that is neither contemplated nor approved by the Common Council or City Code.  A large yacht owned by a famous, wealthy divorcee was given a discount of one day free for four days in dock, according to the vendor.   The audit finds that while such a practice may be a positive marketing tool, it also has the affect of reducing revenue to the city.
 
 Perhaps most disturbing about the results of the audit is that incomplete and/or unverifiable data makes it difficult to assess compliance by the vendor with the terms of the lease agreement.  In some instances, payments were made under terms not in the agreement and expenses were incurred without the required approval of the city.  Safeguards to ensure revenue accuracy were either disregarded or nonexistent.

 There were positives in the audit findings, including an increase in sales from $740,998 in 2004 to approximately $1.3 million in 2007, clear evidence that usage is increasing.  It should also be noted that Commissioner Steven Stepniak of the Department of Public Works, Parks and Streets, has already taken steps to address the recommendations made in this audit.  Unless the changes are made, the city should look carefully at the agreement before any extensions are granted.

 “We are all hoping for waterfront growth and renewal, and certainly the Erie Basin Marina is an important part of that vision,” said Comptroller SanFilippo.  “I’m hopeful that as a result of our findings and recommendations, management will be improved and steps will be taken to clearly record and maintain all revenue generating accounts at the marina so that the city’s return on this important resource is protected.”