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INTERNAL AUDIT REPORT LEASE AND CONCESSION AGREEMENT AUDIT MAD ANTHONY'S, INC. dba ANTHONY'S BELL STREET PIER 66 AND CHINOOK'S FISHERMEN'S TERMINAL JANUARY 1, 2014 DECEMBER 31, 2015 ISSUE DATE: OCTOBER 10, 2016 REPORT NO. 2016-14 MAD ANTHONY'S, INC. INTERNAL AUDIT JANUARY 1, 2014 DECEMBER 31, 2015 EXECUTIVE SUMMARY AUDIT OBJECTIVES AND SCOPE The purpose of the audit was to determine whether Port management monitoring controls are adequate and effective to ensure: 1. Mad Anthony's, Inc. reported concession fees were complete, properly calculated, and remitted timely to the Port. 2. Mad Anthony's, Inc. complied with significant financial provisions of the agreement. We reviewed and analyzed records for the Agreement period January 1, 2014 December 31, 2015. Details of our audit's scope and methodology are on page six. BACKGROUND Lease Agreements No. 294 and No. 43 authorize Mad Anthony's, Inc. to operate restaurants at Bell Street Pier 66 and Fishermen's Terminal. The terms of the agreements provide for fixed Minimum Rent. The agreements also require additional Percentage Rent from gross sales of food and beverage, alcohol beer and wine, and any other sales. Percentage Rent thresholds for gross sales are adjusted annually by the annual percentage change in the "food and beverage component" of the United State Consumer Price Index (CPI) for the Seattle- Everett area. AUDIT RESULT Port management monitoring controls were reasonably effective to ensure the Lessee materially complied with the terms of the Lease and Concession Agreement, as amended. Mad Anthony's reported Concession Fees were materially complete, properly calculated, and remitted timely to the Port. i TABLE OF CONTENTS EXECUTIVE SUMMARY .................................................................................................................................................. i TRANSMITTAL LETTER.................................................................................................................................................. 1 BACKGROUND ............................................................................................................................................................... 2 AUDIT SCOPE AND METHODOLOGY ........................................................................................................................... 3 CONCLUSION ................................................................................................................................................................. 3 TRANSMITTAL LETTER Audit Committee Port of Seattle Seattle, Washington We have completed an audit of the Mad Anthony's, Inc. doing business as Anthony's Bell Street Pier 69 and Chinook's Fishermen's Terminal. We reviewed information for the period January 1, 2014 December 31, 2015. We conducted this audit in accordance with Generally Accepted Government Auditing Standards and the International Standards for the Professional Practice of Internal Auditing. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis of our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We extend our appreciation to the Port management and staff for their assistance and cooperation during the audit. On behalf of Joyce Kirangi, CPA, CGMA Director, Internal Audit AUDIT TEAM RESPONSIBLE MANAGEMENT TEAM Margaret Songtantaruk, Senior Auditor Dave McFadden, Managing Director Economic Development Jessica Martin-Carscadden, Audit Manager Melinda Miller, Director, Portfolio and Asset Management Rudy Caluza, Director Accounting and Financial Reporting MAD ANTHONY'S, INC. INTERNAL AUDIT JANUARY 1, 2014 DECEMBER 31, 2015 BACKGROUND BACKGROUND Lease Agreements No. 294 and No. 43 authorize Mad Anthony's, Inc. to operate restaurants at Bell Street Pier 66 and Fishermen's Terminal. The terms of the agreements provide for fix Minimum Rent. The agreements also require additional Percentage Rent from gross sales of food and beverage, alcohol beer and wine, and as well as any other sales. Percentage Rent thresholds for gross sales are to be adjusted annually by the annual percentage change in the "food and beverage component" of the United State Consumer Price Index (CPI) for the Seattle-Everett area. Percentage rent is scaled as follows: Equal to 6% of gross sales up to the first CPI adjusted breakpoint and 6.25% in excess of the breakpoint for Bell Street Pier 66 restaurant. Equal to 6.25% of gross sales up to the first CPI adjusted breakpoint and 8% in excess in of the breakpoint for Fishermen's Terminal Restaurant. FINANCIAL HIGHLIGHTS REPORTED GROSS RECEIPTS AND CONCESSION PIER 66 REPORTED ANNUAL AGREEMENT PERCENTAGE TOTAL GROSS MINIMUM YEAR RENT RENT REVENUES RENT 2014 $6,637,466 $368,040 $30,208 $398,248 2015 6,888,602 368,040 45,276 413,316 TOTAL $13,526,068 $736,080 $75,484 $811,564 Data Source: Propworks and PeopleSoft REPORTED GROSS RECEIPTS AND CONCESSION FISHERMENS' TERNIMAL REPORTED ANNUAL AGREEMENT PERCENTAGE TOTAL GROSS MINIMUM YEAR RENT RENT REVENUES RENT 2014 $6,660,194 $339,479 $80,889 $420,368 2015 6,081,214 338,929 112,196 451,125 TOTAL $13,741,408 $678,408 $193,085 $871,493 Data Source: Propworks and PeopleSoft 2 MAD ANTHONY'S, INC. INTERNAL AUDIT JANUARY 1, 2014 DECEMBER 31, 2015 AUDIT SCOPE AND METHODOLOGY AUDIT SCOPE AND METHODOLOGY We reviewed information for the period January 1, 2014 December 31, 2015 utilizing a risk-based approach from planning to examination. We gathered information through document requests, research, interviews, observations, and data analysis. We obtained an understanding of the significant provisions of the agreements between the Port of Seattle and Mad Anthony's Inc. and the respective operations. We applied detailed audit procedures to areas with the highest likelihood of significant negative impact as follows: 1. Determine whether Port management monitoring controls are adequate and effective to ensure reported Concession fees were, properly calculated, and remitted timely to the Port. We: Reviewed the Lessee's chart of accounts to determine whether all revenue accounts were included in the revenues reported to the Port. Validated reported Gross Sales agreed to Point of Sales data. Reconciled the reported revenue to Lessee's general ledger and financial statement by revenue category. Tested a risk-based sample of: o Twenty-four months of sales to determine if employee meal deductions were valid. o Three-month reported gross revenues were agreed with B&O tax return. o One week of Point-of-Sale (POS) data were agreed with bank deposit. Analyzed Port records to determine the timeliness of submitted Minimum Rent and Percentage Rent Payments. 2. Determine whether Mad Anthony's, Inc. complied with significant financial terms of the Lease and Concession Agreement, as amended. We reviewed the: Agreement to identify significant financial compliance requirements. Insurance coverage and surety company bond to ensure amounts complied with lease terms. The correct Consumer Price Index (CPI) was obtained and used to properly calculate the change in breakpoint for Percentage Rent. CONCLUSION CONCLUSION CONCLUSION Port management monitoring controls were reasonably effective to ensure the Lessee materially complied with the terms of the Lease and Concession Agreement, as amended. Mad Anthony's reported Concession Fees were materially complete, properly calculated, and remitted timely to the Port. 3
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