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AUDIT REPORT AUDIT REPORT Trinity Alliance Trinity Alliance 45 - 47 Lark Street, Albany, NY 45 - 47 Lark Street, Albany, NY July 2018 July 2018 Susan Rizzo Susan Rizzo Chief City Auditor Chief City Auditor Office of Audit and Control C I T Y O F A L B A N Y ---PAGE BREAK--- 1 Audit Team Susan Rizzo, Chief City Auditor Ransom Moore III, Deputy Chief City Auditor Aindrea Richard, Analyst Eric Ma, Auditor A full copy of this report is available for download at our website: www.albanyny.gov/Government/Departments/OfficeofAuditandControl You may also contact our office by email at [EMAIL REDACTED] ---PAGE BREAK--- 2 Preface The Office of Audit and Control (OAC) exists to provide oversight, transparency and public accountability as a means to improve the City of Albany Administration accountability. This audit is a part of that function. When the OAC takes on an audit subject and, setting aside issues of misconduct, that City department(s) or entities concerned respond positively to address the audit’s findings, it is the commitment of the OAC to support and encourage use of the audit process by City departments as a means to improve their operations. This audit was conducted with the full cooperation of Trinity Alliance and their employees. The City of Albany Administration and Trinity Alliance have committed to addressing any findings. The proper use of the audit findings in these circumstances is to provide for oversight of the resulting changes and as the basis for informed public policy discussions. Given that Trinity Alliance has given their full cooperation, it would be unfair and damaging to the audit process for this audit’s findings to be used for political gain. As such, the OAC will view the political use of this audit’s findings as detrimental to our mission. We thank the Trinity Alliance employees for their cooperation and commitment. ---PAGE BREAK--- 3 Table of Contents Audit Team 1 Preface 2 Background 4 Introduction 4 Scope, Objectives and Methodology 5 Scope Objectives Methodology Audit Results 7 Lack of agreement Operating expenses Insurance Recommendations 8 Conclusion 9 Appendix I – Operating Expenses 10 National Grid 10 James D. Warren and Son 11 Direct Energy 11 Appendix II – Property Details 12 Appendix III – Trinity Alliance Insurance 14 Appendix IV 15 Office of Administrative Service’s Response 15 Auditor’s Response 15 ---PAGE BREAK--- 4 Background This audit was initiated because the Office of Audit and Control (OAC) was alerted that utility expenses related to a decommissioned firehouse had been incurred and paid by the City of Albany. The OAC investigated and determined that the property located at 45 – 47 Lark Street (the “Property”) was indeed owned by the City. However, the property is currently occupied by a nonprofit organization, Trinity Alliance (“Trinity”), which operates its “Arbor Hill Community Center” at this City-owned property. See Appendix III – Property Details for a map of the area. The OAC initiated an audit of the City’s property located at 45 – 47 Lark Street and its current tenant. Introduction The OAC decided to investigate the situation to determine the circumstances surrounding Trinity’s tenancy at 45 – 47 Lark Street and the terms of the arrangement. The primary objective of this audit was to protect the City from any liability related to Trinity’s activities at the Property. The audit findings are as follows: 1. The City of Albany and Trinity Alliance do not have a formal agreement to allow Trinity Alliance to occupy 45 – 47 Lark Street. 2. Trinity Alliance did not have the City of Albany listed as an “additional insured” party on its liability and property insurance policy. 3. Trinity Alliance has incurred operating expenses for which the City of Albany has paid with no reimbursement from Trinity. Also, City of Albany employees respond to Trinity Alliance requests regarding the building with no reimbursement to the City. ---PAGE BREAK--- 5 Scope, Objectives and Methodology Scope The audit covered the tenancy of Trinity at the Property for the period of 2016 through the present. Objectives The objectives of this audit were as follows: 1. Determine if the City has an agreement with Trinity Alliance to occupy the Property; 2. Determine if the City is included as an “additional insured” party on the occupant’s insurance policy; 3. Document and analyze the Property’s operating expenses and determine if Trinity is reimbursing the City; and 4. Determine if Trinity Alliance pays rent to the City of Albany related to its occupancy of the Property. Methodology The overall audit methodology consisted of the following: Conducting a tour of the Property with Trinity personnel; Researching the history of Trinity’s occupancy and the existence of a formal written agreement with the City; Collecting, reviewing, and analyzing the expenses related to the Property; Reviewing Trinity’s insurance policy. The Chief City Auditor contacted a member of the Common Council representing this ward and organized a walk-through of the Property. The mission and services provided by Trinity as well as the history of the Arbor Hill Community Center located in the decommissioned firehouse were discussed. The OAC determined that the Arbor Hill Community Center was established by Trinity Alliance during a previous administration. Additionally, it was discovered that there was no agreement established between Trinity and the City. Since there was no formal agreement, Trinity does not pay the City rent and does not pay for operating expenses associated with the Property. The OAC contacted other ---PAGE BREAK--- 6 departments of the City that it believed may have had a copy of such a document on file. However, no such document was found to exist. The OAC reviewed the City’s operating/capital expenses related to 45 – 47 Lark Street. The table below summarizes the expenses that the OAC was able to attribute to Trinity’s operation of its Arbor Hill Community Center. 2016 2017 YTD Total National Grid $9,216.09 $12,701.25 $3,060.17 $24,977.51 James D. Warren and Son Inc. $310.00 $1,144.34 $11,516.19 $12,970.53 Direct Energy $1,417.74 $1,426.94 $1,756.42 $4,601.10 Amazin Glass Co. $270.00 $270.00 Red Hawk Fire & Security $291.60 $291.60 Total $10,943.83 $15,542.53 $16,624.38 $43,110.74 The data in the above table is limited, however, because invoices were only included if it explicitly stated “Trinity Alliance” or “45-47 Lark Street.” The OAC is only able to verify the accuracy of the information but not its completeness. The OAC requested a copy of Trinity’s insurance policy. It was discovered that the City was not listed as an “additional insured” party on Trinity’s insurance policy. The OAC immediately requested that Trinity add the City of Albany as an additional insured on its insurance policy. ---PAGE BREAK--- 7 Audit Results Lack of agreement Trinity Alliance and the City of Albany do not have a formal agreement for Trinity Alliance to occupy 45 - 47 Lark Street. Trinity’s current occupancy of the Property began during a prior administration and has continued without any documentation. Operating expenses Trinity Alliance has incurred operating expenses that the City of Albany has paid without reimbursement. These expenses include utilities, HVAC service and miscellaneous repairs. Capital expenses Trinity Alliance has incurred capital expenses that the City of Albany has paid. Rent is usually charged in third party tenant occupied buildings to offset some of the capital needed to maintain a building. Insurance Trinity Alliance did not have the City of Albany as an additional insured party on its liability and property insurance policies. ---PAGE BREAK--- 8 Recommendations 1. Negotiate a Lease Agreement or Facility Use Agreement for Trinity Alliance to occupy the Property. The City should decide whether or not to charge Trinity and if operating expenses should be passed through to the tenant. As part of this process, the OAC believes a sale of the Property should be considered, either to Trinity or a third party. 2. The Administration should decide if Trinity needs to reimburse the City for historical operating expenses related to the Property. In addition, Trinity and the City should negotiate terms to determine how operating expenses billed to the City shall be directed and paid. The agreement should also include who should be paying for capital expenditures incurred at the Property. 3. The OAC recommends that the Administration develop a proactive strategy for addressing any other City properties that are occupied by third parties. Formal written agreements including rent (if any), operating expense reimbursement, capital expenditures and insurance should be addressed. 4. The OAC requested Trinity add the City of Albany as an additional insured party on its insurance policy. Trinity responded immediately to the request. Annually, a certificate of insurance should be received from Trinity certifying that the policy includes “The City of Albany, 24 Eagle Street, Albany, NY 12207” as an additional insured party and loss payee. The City should determine the appropriate coverage that protects itself. ---PAGE BREAK--- 9 Conclusion Trinity Alliance provides many benefits to the residents of the City of Albany. The Administration needs to establish an appropriate occupancy agreement with Trinity to formally codify the terms of the arrangement. A formal agreement will resolve the issue of the City’s liability and address responsibility for expenses. ---PAGE BREAK--- 10 Appendix I – Operating Expenses National Grid ---PAGE BREAK--- 11 James D. Warren and Son Direct Energy ---PAGE BREAK--- 12 Appendix II – Property Details Note: The City of Albany owns the building occupied by Trinity Alliance. The Parking Lot (behind the building) is owned by the City of Albany School District. ---PAGE BREAK--- 13 ---PAGE BREAK--- 14 Appendix III – Trinity Alliance Insurance ---PAGE BREAK--- 15 Appendix IV Office of Administrative Service’s Response Auditor’s Response The Office of Audit and Control will follow-up to verify if recommendations are addressed.