Objective

To determine whether the Port Authority of New York and New Jersey has a tracking system that accurately accounts for all its properties, including all leases; whether it has identified revenue enhancement opportunities; and whether it has followed required procedures in the leasing of its properties. This audit covered the period January 1, 2014 through August 9, 2018.

About the Program

The Port Authority of New York and New Jersey (PANYNJ) was established in 1921 and was the first bi-state agency ever created under a clause of the Constitution permitting compacts between states with Congressional consent. Its area of jurisdiction is called the Port District, a region within a radius of approximately 25 miles of the Statue of Liberty. The PANYNJ was created to promote and protect the commerce of the Port District and to undertake port and regional improvements not likely to be financed by private enterprise or would not be attempted by either state alone. These include the development of major infrastructure, a modern port for the harbor shared by the two states, tunnel and bridge connections between the states, and, in general, trade and transportation projects that secure the region’s economic well-being.

The PANYNJ conceives, builds, operates, and maintains infrastructure critical to the New York/New Jersey region’s trade and transportation network. These facilities include America’s busiest airport system, marine terminals and ports, the Port Authority Trans-Hudson (PATH) rail transit system, six tunnels and bridges between New York and New Jersey, the Port Authority Bus Terminal in Manhattan, the George Washington Bridge Bus Station, and the World Trade Center (WTC).

The PANYNJ has five departments that reflect its major business segments, including:

• Port Commerce – operates the Port of New York and New Jersey, the third-largest container port facility by volume in the United States. 
• Aviation – manages five airport facilities within the region that serve as vital gateways to the world. These facilities provide a global connection for passengers and cargo. 
• WTC – whose core functions encompass the design and construction of the various capital projects at the WTC site (including coordination with private developers and governmental entities). 
• PATH – operates and maintains a rapid transit railroad serving Newark, Harrison, Hoboken, and Jersey City in metropolitan northern New Jersey and Manhattan in New York City. The PATH operates 24 hours daily. 
• Tunnels, Bridges, and Terminals – manages and maintains six interstate vehicular crossings and two interstate bus terminals that are the foundation of the transportation network that supports the economic engine of the New York and New Jersey region.

The PANYNJ uses two systems to track the status of its properties and to track rent and revenues – SAP and YARDI. SAP is an enterprise resource program that is used by the PANYNJ as the system of record; YARDI is a real estate investment and property management software used primarily for reporting occupancies and vacancies. The information contained in YARDI is downloaded from the SAP system, and thus, the two systems’ data should match.

Key Findings

We determined that certain weaknesses existed in the PANYNJ’s internal controls over leases:

• The PANYNJ did not always accurately account for its leases. Discrepancies existed in the lease information contained in its two primary systems. Moreover, neither system accounted for all PANYNJ leases. For instance, multiple leases at Stewart Airport were not reflected in either system.
• In one case in 2015, the PANYNJ executed a permit for a property that it did not own. The PANYNJ response, dated October 24, 2018, stated “While efforts were ongoing for renewing MNS371, staff discovered that the area in question was not covered under the lease between PANYNJ and the City of Newark (not under the control of PANYNJ).” The new lease was not executed. Such an error should not have occurred.
• We found two properties that were previously leased and were vacant for a combined 45 months as of November 29, 2018, resulting in forgone revenue in the approximate amount of $828,290. On January 8, 2019, PANYNJ officials provided a preliminary document attesting to current negotiations to lease these assets.
• The PANYNJ could not document that it attempted to lease the properties we examined at market rate. We found that, for Port Commerce, seven out of nine leases had various segments of the property leased for well below the market rate. The PANYNJ does not have written procedures describing the leasing process. Moreover, based on the lease files we reviewed, the PANYNJ did not always follow its own “best” practices.

Key Recommendations

• Ensure SAP and YARDI accurately reflect the agreed-upon terms and conditions and specifications in the contracts entered into by the PANYNJ (including Stewart Airport).
• Create a formal marketing strategy to proactively seek out tenants to rent vacancies. Take proactive, documented steps to minimize idle time for vacant properties.
• Conduct market research to ensure rents charged are consistent with market prices and rental properties generate optimal rental income.
• Implement formal policies and procedures to ensure that leases for similar types of properties follow a standard format and that files include complete documentation of the leasing process.