NYC Comptroller Audit Exposes 47th St BID’s Fiscal Mismanagement; Calls for City to Withhold Funds to Compel Changes...

NYC Comptroller Audit Exposes 47th St BID's Fiscal Mismanagement; Calls for City to Withhold Funds to Compel Changes in Leadership & By-Laws

In a blistering new audit, New York City Comptroller Brad Lander unveiled ongoing fiscal mismanagement by the 47thStreet Business Improvement District (BID), the non-profit chartered by the City's Department of Small Business Services (SBS) and provided with City property tax assessments to maintain, develop, and promote the commercial activities of the Diamond District (West 47thStreet between 5thand 6thAvenues).

Despite a 2019 audit by the Comptroller's office documenting extensive weaknesses in its finances and operations and detailing correction action, the BID failed to correct its practices. Comptroller Lander's newly-released follow-up audit revealed that the BID spent nearly $400,000 improperly providing security for the offices of the Board Chair, which are outside of the district, paid its Executive Director over $30,000 for time not worked, and repeatedly flouted laws and policies in order to keep control in the hands of its leadership. Meanwhile, fewer than 3% of the businesses within the Diamond District participate as members in the BID's work.

Given the BID's repeated non-compliance, the Comptroller recommends that the City place the 47thStreet BID's tax assessment funding in escrow until the BID makes changes in its leadership, by-laws, and policies to address ongoing mismanagement.

"The leadership of the 47thStreet BID is misusing City property tax assessment for its own benefit, and repeatedly violating laws and policies to improperly maintain its control. Meanwhile, fewer than 3% of the businesses in the district are participating members," said Comptroller Brad Lander. "Given the board's repeated refusal to address ongoing fiscal mismanagement of City funds, the Department of Small Business Services must take the serious step of withholding the BID's assessments until there are changes in leadership, by-laws, and practices."

The Comptroller Office's prior audit from 2019 had found that the BID:

1. Spent $210,835 on security services for the Board Chair's office outside of the district;
2. Did not get board approval for budget modifications;
3. Paid its executive director $25,242 to $38,664 more than other BID directors in FY2017;
4. Did not monitor payroll transactions or have employees submit timesheets;
5. Did not follow rules around competitive contracting and purchasing, including disclosures for conflict of interest.

Comptroller Lander's new audit found that the 47thStreet BID did not clean up its act and instead:

1. Continued to pay for security services for the Board Chair's office outside of the district- $390,968 in FY2022 alone;
2. Paid its executive director $32,846 for time not worked on unauthorized leave, and additional gave him an unauthorized raise of $4,000;
3. Continued to fail to monitor payroll or have submitted timesheets;
4. Did not obtain board approvals before making payments to vendors nor have the bookkeeper review vendor contract pricing and terms. The BID did not competitively procure 5-out-of-6 procurements exceeding $20,000 (total procurement of $438,962) for maintenance, lobbying, and insurance. In addition, the BID did not maintain written agreements for 7 out of its 9 smaller vendors, totaling $151,293;
5. Repeatedly violated state law by only having a small handful of directors vote on executive, nominating, and audit committee appointments. The Board Chair appointed all of his own audit and website committee members and a non-ex-officio finance committee member, but the board did not approve these appointments. In addition, the BID improperly allowed people who do not own property or a business in the district to vote to elect officers and conduct business;
6. Charged Netflix at least $104,536 for the filming the TV series Kaleidoscopewithout approval by the City Council, Mayor's Office of Media and Entertainment, and SBS;
7. Failed to submit contractor background checks to SBS, potentially violating conflict of interest rules;
8. Meanwhile, the audit found that only 2.9% of the 3,000 businesses within the Diamond District are members of the BID.

BIDs are chartered by the City to deliver services to commercial districts to help keep them vibrant, clean, and safe, through street cleaning and sanitation, security, beautification, marketing and events, and other services. Each BID is run by a not-for-profit organization with a Board of Directors elected by its members.

The NYC Department of Finance (DOF) levies a special assessment, billed to property owners, to fund BID services, which are then voted on by property owners in the area. The City of New York collects the special assessment and then turns it over to the BID.

The Comptroller, who holds a Class D position on each of NYC's 76 BID boards of directors (along with SBS, the borough president, and the local councilmember), analyzed all 76 BIDsin 2023, which showed that the vast majority of BIDs follow applicable governance and fiscal guidelines.

For the first time, the Comptroller has recommended that SBS instruct DOF to place the BID's special assessment collections in escrow until the BID changes its by-laws, re-elects or appoints leadership, and agrees to implement the audit's recommendations.

Lander continued, "The 47thStreet BID's funds are collected by the City and delivered to the BID to enhance safety, security, and vibrancy for the 3,000 businesses, workers, and customers of the district - not for the benefit of its Board Chair and Executive Director. The City should withhold future funds until fundamental changes are made."

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