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Water Club May Have Stiffed the City on Rent, Audit Says

By Amy Zimmer | February 9, 2011 2:32pm | Updated on February 10, 2011 6:07am
The Water Club along the East River
The Water Club along the East River
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By Amy Zimmer

DNAinfo News Editor

MANHTTAN — The elegant Water Club restaurant, with its glittering waterfront views and upscale American fare, may be shortchanging taxpayers, according to an audit released Tuesday by City Comptroller John Liu.

The Water Club's rent for its city-owned space along the East River, between East 30th and East 32nd streets, is based on its revenue, but an audit Liu released on Tuesday raises serious questions about whether the well-known restaurant has been accurately reporting cash sales.

His office found slipshod accounting of its bar's receipts and cast doubt on whether capital improvements the restaurant was required to make on its city-owned property were completed. It accused the city's Economic Development Corporation, which manages the restaurant's lease, with lax oversight.

The lease required the Water Club in 2009 to pay $495,000 in rent unless its gross receipts exceeded $8.25 million, in which case, the restaurant would pay 6 percent of its sales (which would be in excess of $495,000), plus 7 percent of receipts exceeding $10.5 million.

The Water Club reported it made $6,190,181 in 2009. So, it paid the city $495,000 in rent and $4,142 in late charges, the audit stated.

But Liu's auditors, posing as customers on six visits to the Water Club in June and July 2010, said that the restaurant's bartender hit "no sale" on the register one time for every four checks entered. A subsequent audit found that 12 of these auditors' orders for food and drink had disappeared from the books. Only 10 were reflected in the restaurant's sales records, the audit found.

Records also uncovered that the restaurant recorded 10,243 guest checks in 2009, and then hit the "No Sale" function 6,455 times, according to the audit.

"Taxpayers have every right to insist on getting the revenue as well as public space improvements required of concessionaires," Liu said in a statement. "There are plenty of others who are chomping at the bit to be awarded concession agreements by the City."

The Water Club's 25-year lease with the city enacted in 1979 was later extended to Aug. 31, 2030.

The restaurant's lease also required it to make at least $450,000 worth of capital improvements on the city-owned waterfront esplanade, based on input from Community Board 6, which had been calling for lighting, landscape and parking lot improvements.

From the documentation provided, however, the restaurant failed to convince Liu's office that the $527,939 in receipts on capital improvements was actually spent on the required upgrades.

The Water Club did not respond immediately for comment.

But it included a response in the audit, which stated, "To ensure the integrity of the bar staff, we have and will continue to conduct spot integrity checks and tests. If we found a dishonest bartender, which is endemic to this business, we would terminate them."

The restaurant told the comptroller's office it would resubmit documentation to EDC regarding the required capital improvements.

"The comptroller's own audit shows that we are not owed a penny more," said Julie Wood, an Economic Development Corp. spokesperson. "Of course, we are committed to making sure that all of our properties report receipts accurately and are actively working to improve the processes at this property. We are also working to ensure that needed improvements to the property are made quickly.”

Liu noted the amounts "involved are minor against the backdrop of billion-dollar city deficits," but said the "report does expose the continuing problem of lax oversight by the city over its concessionaires."

An audit from the comptroller’s office, under Bill Thompson in 2008, raised concerns about another East River facility overseen by the EDC. It found that Skyports, a parking garage and marina leasing space along East 18th and East 23rd streets, was in such serious disrepair, it could cost the city at least $5.5 million to make the area safe.