03 Budget
Internal Audit Report Lease and Concession Audit Avis Budget Group, LLC dba Budget Rent A Car System, Inc. November 1, 2008 October 31, 2011 Issue Date: November 13, 2012 Report No. 2012-21 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 Table of Contents Transmittal Letter ........................................................................................................................ 3 Executive Summary .................................................................................................................... 4 Background ................................................................................................................................ 5 Conclusion .................................................................................................................................. 7 Schedule of Findings and Recommendations ............................................................................. 8 1. Budget Did Not Comply With Record Retention Requirements Related to Certain Key Records 8 2. Concession Revenue Was Underreported ...................................................................... 9 Page 2 of 10 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 Transmittal Letter Audit Committee Port of Seattle Seattle, Washington We have completed an audit of the Avis Budget Group LLC, dba Budget Rent A Car System, Inc. We reviewed information relating to a three-year period from November 1, 2008, through October 31, 2011. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for 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 management and staff of Aviation Business Development and Accounting and Financial Reporting for their assistance and cooperation during the audit. Joyce Kirangi, CPA Internal Audit, Director Page 3 of 10 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 Executive Summary Audit Scope and Objective The purpose of the audit was to determine whether: 1) The reported concession fees were complete, properly calculated, and remitted timely to the Port. 2) The Port and the lessee complied with provisions of the Lease and Concession Agreement, as amended. 3) Customer Facility Charges (CFC) were properly collected and remitted timely to the Port. We examined the books and records of Budget Rent A Car System, Inc. (Budget) for a three-year period from November 1, 2008 through October 31, 2011. Aviation Business Development, in conjunction with Accounting and Financial Reporting, has the primary responsibility for administering and monitoring the agreement to ensure compliance with agreed-upon terms. Agreement Terms The terms of the agreement provide for a Minimum Annual Guarantee (MAG) of 80% of the total amount paid to the Port in the previous agreement year. Additionally, the agreement requires a Percentage Fee equal to 10% of gross revenues provided the fee is higher than the monthly MAG payment. Audit Result Summary Budget materially complied with the terms of the Lease and Concession agreement. However, as reported in Findings 1, we determined that certain key records had not been retained in accordance with the terms of the agreement. Further, certain gross receipts were underreported which resulted in approximately $9,217 of additional concession fees, late fees, and interest charges. Page 4 of 10 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 Background Budget is one of three brands offering rental cars/trucks within the Avis Budget Group, LLC. Avis Budget Group is headquartered in Parsippany, N.J., and maintains a local administrative office and fleet maintenance facility near Seattle-Tacoma International Airport. The Budget office within the airport is wholly owned by Avis Budget Group. In 2008, Budget entered into a 30-year agreement with the Port to operate from its (future) consolidated rental car facility. The terms of the agreement provide for a Minimum Annual Guarantee (MAG) of 80% of the total amount paid to the Port in the previous agreement year. Additionally, the agreement requires a Percentage Fee equal to 10% of gross revenues, provided the Percentage Fee is higher than the monthly MAG payment. The following are the only agreed-upon deductions allowed in the agreement: a. Any tax imposed or collected on behalf of a taxing authority b. Any amounts received as insurance proceeds or for damage to vehicles or other property, or for loss, conversion or abandonment of such vehicles c. The wholesale transfer of salvage vehicles d. All non-revenue rentals to employees e. Fees paid to other governmental agencies (excluding the Port), relating to transactions at the Airport The MAG is payable in advance, on or before the first day of each month, without notice from the Port. The percentage fee, if applicable, is due on or before the 20th of the following month. For untimely payments, the agreement provides for a one-time late fee of 5% of the overdue amount and interest to be accrued at the rate of 18% per year from the due date until paid. Below are the financial highlights for the last three fiscal years: Fiscal Reported Paid Year Gross Revenue Concession 2008 2009* $24,626,865 $3,500,400 2009 2010* 21,527,526 2,452,727 2010 2011 26,263,513 2,626,085 Total $72,417,904 $8,579,212 * MAG is greater than concession for the Agreement Year Audit Scope and Methodology We conducted the audit to determine whether the parties were in compliance with the lease agreement terms including, but not limited to, proper concession and CFC payments. We utilized a risk-based audit approach from planning to test sampling. We gathered information through document requests, interviews, observation, and analytical reviews. We obtained a complete understanding of the financial requirements of the Agreement between the Port of Seattle and Budget. We applied Page 5 of 10 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 additional detailed audit procedures to areas with the highest likelihood of significant negative impact as follows: a. Timely Payment e. CPA Certified Annual Report b. Insurance Liability f. Concession Revenue c. Surety Bond/Security Deposit g. Customer Facility Charge (CFC) d. Minimum Annual Guarantee (MAG) a) Timely Payment We reviewed payment records to determine whether the lessee complied with the required due date. b) Insurance Liability We reconciled insurance requirements to the coverage reflected in the certificate of insurance in force for the audit period to current. c) Surety Bond/Security Deposit We determined whether the surety bond amount complied with the requirements stipulated in the agreement. d) Minimum Annual Guarantee We determined whether MAG was properly calculated and Port management obtained Port Commission approval for Exception Relief to MAG. e) CPA Certified Annual Report We reviewed audit reports for the audit period to determine compliance with the timely and complete submission of the report. f) Concession Revenue We interviewed Budget Personnel about their policies, procedures, and internal controls over cash receipts, sales, accounting, and reporting. The Business Adjustment Report (BAR), which is the general ledger, shows the monthly detail per revenue category. The Revenue Report shows the monthly totals summarized by revenue category. We reconciled the BAR to the CPA report to the Revenue Report. To determine whether the lessee completely reported all concession revenues, we selected a sample of 213 closed rental agreements deemed high-risk for the audit period. We determined whether the revenue reported on each rental agreement agreed to the amount posted to the BAR. Page 6 of 10 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 g) Customer Facility Charges We reconciled the CFC amount reported in the BAR to each rental agreement in the risk-based sample of closed rental transactions. We determined whether the CFC was properly calculated, timely collected, and remitted in full to the Port, as required in the agreement. Conclusion Budget materially complied with the terms of the Lease and Concession agreement. However, as reported in Findings 1, we determined that certain key records had not been retained in accordance with the terms of the agreement. Further, certain gross receipts were underreported which resulted in approximately $9,217 of additional concession fees, late fees, and interest charges. Page 7 of 10 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 Schedule of Findings and Recommendations 1. Budget Did Not Comply With Record Retention Requirements Related to Certain Key Records Section 7.1 further states: "Concessionaire shall maintain its records relating to the operation permitted by this Agreement for a period of at least three (3) years after the end of each Agreement Year (or until the close of any ongoing audit thereof being conducted by, or on behalf of, the Port)". The above section translates to the following record retention time schedule for the audit period: Record Retention for three (3) years after the end of each Agreement Year agreement year st nd rd 1 Year 2 Year 3 Year November 1, 2008 to October 31, 2009 October 31, 2010 October 31, 2011 October 31, 2012 November 1, 2009 to October 31, 2010 October 31, 2011 October 31, 2012 October 31, 2013 November 1, 2010 to October 31, 2011 October 31, 2012 October 31, 2013 October 31, 2014 The Section 7.1 of the agreement states, in part: "Concessionaire covenants and agrees that it will establish and maintain an accounting system (specifically including all books of account and records customarily used in the type of operation permitted by this Agreement) in full and complete accordance with generally accepted accounting principles and otherwise satisfactory to the Port for the determination of any Concession Fees or other computations, or both, which may be necessary or essential in carrying out the terms of this Agreement." For the fiscal period ended 2009 and 2010, we were unable to verify adjustments to concession revenue because Budget had not retained the following key records in accordance with the lease and concession agreement. 12 months 12 months Unavailable Key Records Budget Report Ref. ending Oct. ending Oct. 31, 2009 31, 2010 RA PAYMENT/HISTORY Time and Mileage (T&M) Adjustments SCREEN No Limited Closed Car Rental Agreements RECEIPT Availability Availability Detail Customer Payment Information CCB020 Including Refunds Consequently we could not determine the completeness of the following: Page 8 of 10 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 a. CFC for the 10-month period ending August 31, 2009. b. Total adjustments of $197,403 and $181,522 reported concession revenues in 2009 and 2010, respectively. Recommendations: We recommend management: Ensure the lessee maintains records in accordance with the lease agreement. Consider amending the agreement to specifically address noncompliance with record retention requirements. Management Response Management believes that Avis/Budget did materially comply with the Lease requirements regarding record retention. Their policy is to retain the records in questions on a rolling 3 year basis (most recent 36 months). As such, it would be in the Port's best interest to conduct the audits one to two years after the close of the year to ensure we get the information we need. Management does not believe that amending the lease is a viable option, as the Concessionaire would not agree to terms that would add penalties and/or more burdensome record keeping. 2. Concession Revenue Was Underreported The lease agreement in Section 1.26 stipulates: "Gross Revenues" shall mean and refer to all consideration of any kind- whether cash, credit or in kind- received, derived and/or billed by the Concessionaire for: (a) all charges, including, but not limited to, time and mileage charges and separately stated fees for rental of vehicles and other related or incidental services or merchandise, and any other items or services, made at or from Concessionaire's Rental Car Concession, regardless of where the vehicles or services are delivered to or returned; (b) all amounts charged to the customer for insurance offered by Concessionaire incidental to the rental of such vehicles, including but not limited to personal accident insurance; (c) all charges attributable to any vehicle originally rented at Concessionaire's Rental Car Concession which is exchanged at any other location; (d) all proceeds from the long-term lease of vehicles from Concessionaire's Rental Car Concession; and (j) all amounts charged by Concessionaire for the Recovery Fee" All gross revenues from operations are subject to concession, except for the following agreedupon exclusions. a. Any amounts received as insurance proceeds or for damage to vehicles or other property, or for loss, conversion or abandonment of such vehicles. b. The wholesale transfer of salvage vehicles. c. Non-revenue rentals to employees. d. Fees paid to other governmental agencies (excluding the Port) Page 9 of 10 Internal Audit Report Budget Rent A Car System November 1, 2008, through October 31, 2011 e. Any tax imposed or collected on behalf of a taxing authority. Our analysis and review of the lessee's financial records and detail transaction testing determined that the following gross revenues were underreported to the Port: No-Show Revenue Security Fee Miscellaneous Vendor Recovery Shopping Cart Income Foreign Exchange Fee Employee (Paid) Rental MBNA Hospitality Division Valet/Overdue Charge Tire Wheel Damage Fee Budget has acknowledged the amounts cited in the table below, which summarizes underreported gross revenue: (See Schedules A, B, and C, for detail.) Total Year-Ended Gross Revenue Understatement October 31, to the Port 2009* $24,626,865 $57,026 2010* 21,527,526 58,760 2011 26,260,852 80,326 Concession Revenue 196,112 Underreported Concession Fees Underpaid 8,038 One Time Late Payment Fee (5%) 212 Interest Accrued (18%) 967 Total Due to the Port $9,217 * No fee due on understated revenue for this period because MAG was greater than concession fee. Recommendations: We recommend management: Seek and recover approximately $9,217 in underpaid concession fees, late fees, and interest charges. Work with Avis Budget Group, LLC, to ensure that all receipts subject to the concession fee are accurately and completely reported. Management Response Concessionaire is in agreement with findings, and Management will collect monies owed accordingly. Page 10 of 10 Total 24,626,865 4,650 964 1,252 2,868 18,974 5,903 22,104 2,468,389 3,679,980 (179,580) 3,500,400 311 57,026 24,683,891 Oct-09 1,544,885 100 217 1,137 (8,657) 2,619 154,030 291,700 (4,584) 1,540,301 Sep-09 2,651,927 600 707 3,257 (2,481) 3,918 265,793 291,700 Net Payment from Avis 6,001 2,657,928 Aug-09 4,179,233 550 1,944 3,232 4,805 3,132 419,290 417,923 Credit Issued at Fiscal Year End 13,663 4,192,896 Jul-09 3,450,565 700 4,424 7,796 1,890 346,537 345,057 14,810 3,465,375 Jun-09 2,521,303 600 177 3,298 1,635 252,701 291,700 5,710 2,527,013 May-09 1,807,011 500 100 1,226 1,142 1,574 181,155 291,700 4,542 1,811,553 Apr-09 1,766,131 300 824 996 1,266 3,386 11 176,952 291,700 1,769,517 Mar-09 1,643,688 350 904 2,293 164,723 291,700 3,547 1,647,235 Feb-09 1,258,937 250 1,010 126,020 1,260 291,700 1,260,197 Jan-09 1,221,486 250 413 465 995 - 122,361 291,700 2,123 1,223,609 Dec-08 1,319,203 200 483 220 1,026 933 132,206 291,700 2,862 1,322,065 250 68 108 311 SCHEDULE A - GROSS REVENUE UNDERREPORTING Nov-08 1,262,496 1,120 1,849 3,706 126,620 291,700 FOR THE 12 MONTHS ENDED OCTOBER 31, 2009 1,266,202 BUDGET RENT A CAR SYSTEM, INC ) CPA year-end true up Gross Revenue (a ) + (b) = c (c x 10%) Valet/Overdue Surcharge E - Transactions (Employee Paid Rental) Tire/Wheel Damage Shopping Cart Income No-show Revenue MISC Vendor Recovery - 4204613 Foreign Exchange Fee MBNA Hospitality Division Total Additions (b ) Adjusted Gross Revenue (a FINDINGS: ADD Concession Fee Payable - Concession Fee Reported Total 21,527,526 2,450 978 150 (322) 21,425 19,652 (5,735) 20,028 134 58,760 21,586,286 2,158,629 2,815,101 (362,374) 2,452,727 Oct-10 1,627,297 200 97 377 2,119 134 2,217 5,144 1,632,441 163,244 204,394 Sep-10 2,597,678 100 310 150 26 335 3,936 179 3,628 8,664 2,606,341 260,634 259,768 Net Payment from Avis Aug-10 3,769,061 150 19 602 2,546 375 2,606 6,298 3,775,360 377,536 376,906 Credit Issued at Fiscal Year End 450 387 Jul-10 3,211,955 (1,214) 9,043 2,332 1,920 12,918 3,224,873 322,487 321,196 Jun-10 2,220,801 600 6 599 1,783 (3,396) 1,902 1,494 2,222,294 222,229 222,080 May-10 1,525,800 250 1 329 1,030 2,909 1,449 5,968 1,531,768 153,177 204,394 Apr-10 1,320,992 150 0 2,809 849 376 1,199 5,383 1,326,375 132,638 204,394 1,161,338 150 735 236 664 12 Mar-10 1,164,227 116,423 204,394 1,104 2,889 Feb-10 1,044,746 100 7 1,053,865 105,386 204,394 6,614 1,084 - 445 869 9,119 Jan-10 823,958 150 669 0 827,718 82,772 204,394 130 841 1,107 863 3,760 Dec-09 1,016,836 100 2 1,019,404 101,940 204,394 191 1,272 33 836 134 2,568 50 (2) 160 SCHEDULE B - GROSS REVENUE UNDERREPORTING Nov-09 1,207,065 1,196 (8,284) 1,435 (5,445) 1,201,620 120,162 204,394 BUDGET RENT A CAR SYSTEM, INC FOR THE 12 MONTHS ENDED OCTOBER 31, 2010 ) CPA year-end true up Gross Revenue (a ) + (b) = c (c x 10%) FINDINGS: ADD Valet/Overdue Surcharge E - Transactions (Employee Paid Rental) Tire/Wheel Damage Vehicle License Fee (VLF) Shopping Cart Income No-show Revenue MISC Vendor Recovery Foreign Exchange Fee MBNA Hospitality Division ) Total Additions (b Adjusted Gross Revenue (a Concession Fee Payable - Concession Fee Reported Total 26,263,513 3,680 1,082 50 101 140 21,997 26,233 4,595 22,448 80,326 26,343,839 2,634,384 4,241 212 - - 967 5,420 - - 9,217 4,241 3,797 8,038 1,179 3,115,604 Oct-11 1,680,847 420 8 1,431 1,695 411 2,672 6,637 1,687,484 168,748 205,224 - 13 Sep-11 2,724,661 460 5 3,306 4,545 891 3,719 12,926 2,737,587 273,759 271 272,466 1,293 14 1,564 Amount Due to the Port Aug-11 4,795,070 100 564 4 140 4,264 4,643 704 3,211 13,630 4,808,700 480,870 307 Concession Fee Per Audit 479,507 1,363 15 1,670 Concession Fee Due To The Port Plus Late Fee & Interest Accrued 22 Credit Over Issued At Year End True Up Jul-11 4,255,304 600 372 2,932 3,758 551 2,201 10,436 4,265,740 426,574 425,530 1,044 16 250 1,294 Jun-11 2,963,090 650 50 10 420 2,384 451 1,458 5,423 2,968,513 296,851 296,309 542 17 138 - 680 - May-11 1,909,189 200 2 1,010 1,360 260 1,584 4,416 1,913,605 191,360 205,224 - 18 Apr-11 1,761,160 250 6 997 1,533 303 1,508 4,597 1,765,757 176,576 205,224 - 19 1,614,332 200 53 6 763 1,165 158 1,391 3,736 1,618,068 13 Mar-11 161,807 - - - 205,224 20 - Feb-11 1,060,434 150 12 881 1,898 112 1,111 4,164 1,064,598 106,460 205,224 - - 21 Jan-11 1,024,996 100 1 714 731 314 993 2,853 1,027,849 102,785 205,224 - 22 - - 3 23 (477) 847 38 1,065 1,726 1,178,556 117,856 - - - 250 205,224 Dec-10 1,176,830 24 22 402 - - Interest - 300 93 205,224 5,756 1,674 1,535 9,782 1,307,382 130,738 Nov-10 ) 1,297,600 ) + (b) = c (c x 10%) = (d) # of Months to Current BUDGET RENT A CAR SYSTEM, INC SCHEDULE C - GROSS REVENUE UNDERREPORTING FOR THE 12 MONTHS ENDED OCTOBER 31, 2011 INTEREST CALCULATED AS OF 10/31/2012 CPA year-end true up Gross Revenue (a FINDINGS: ADD Valet/Overdue Surcharge E - Transactions (Employee Paid Rental) Tire/Wheel Damage Vehicle License Fee (VLF) e) Security Fee Shopping Cart Income No-show Revenue Misc Vendor Recovery Foreign Exchange Fee ) Total Additions (b Adjusted Gross Revenue (a Concession Fee Payable - Concession Fee Reported Add'l Concession Payable (d) One Time Late Payment Charge 5% Interest Rate Annually 18% or 1.5% Per Month Total Add'l Concession Payable and Payable ( d) + (
Limitations of Translatable Documents
PDF files are created with text and images are placed at an exact position on a page of a fixed size.
Web pages are fluid in nature, and the exact positioning of PDF text creates presentation problems.
PDFs that are full page graphics, or scanned pages are generally unable to be made accessible, In these cases, viewing whatever plain text could be extracted is the only alternative.