02 Avis
Internal Audit Report Lease and Concession Audit Avis Budget Group, LLC dba Avis Rent A Car System, Inc. November 1, 2008 October 31, 2011 Issue Date: November 13, 2012 Report No. 2012-20 Internal Audit Report Avis 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. Avis Did Not Comply With Record Retention Requirements ................................................................. 8 2. Concession Revenue Was Underreported ............................................................................................... 9 Page 2 of 10 Internal Audit Report Avis 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 Avis 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 Avis 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 Avis Rent A Car, Inc. (Avis) 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 Avis materially complied with the terms of the Lease and Concession agreement. However, as reported in Findings 1 and 2, we determined that records had not been retained in accordance with the terms of the agreement and certain gross receipts were underreported. We recommend Port management seek and recover approximately $7,671 in additional concession fees, late fees, and interest charges. Page 4 of 10 Internal Audit Report Avis Rent A Car System November 1, 2008, through October 31, 2011 Background Avis 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 Avis office within the airport is wholly owned by Avis Budget Group, LLC., and in 2008, Avis 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 $40,271,615 $4,225,757 2009 2010* 38,181,518 4,058,000 2010 2011* 42,257,572 4,058,000 Total $120,710,705 $12,341,757 * 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 Avis. We applied Page 5 of 10 Internal Audit Report Avis 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 Avis 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 150 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 Avis 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 Avis materially complied with the terms of the Lease and Concession agreement. However, as reported in Findings 1 and 2, we determined that records had not been retained in accordance with the terms of the agreement and certain gross receipts were underreported. We recommend Port management seek and recover approximately $7,671 in additional concession fees, late fees, and interest charges. Page 7 of 10 Internal Audit Report Avis Rent A Car System November 1, 2008, through October 31, 2011 Schedule of Findings and Recommendations 1. Avis Did Not Comply With Record Retention Requirements Related to Certain Key Records The Section 7.1 of the agreement states, in part: "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 Section 7.1 further states: "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 Avis had not retained the following key records in accordance with the lease and concession agreement. 12 months 12 months ending Unavailable Key Records Avis Report Ref. ending Oct. 31, 2010 Oct. 31, 2009 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: a. CFC for the 10-month period ending August 31, 2009. b. Total adjustments of $188,653 and $142,761 to concession revenues in 2009 and 2010, respectively. Page 8 of 10 Internal Audit Report Avis Rent A Car System November 1, 2008, through October 31, 2011 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) 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 Miscellaneous Vendor Recovery Page 9 of 10 Internal Audit Report Avis Rent A Car System November 1, 2008, through October 31, 2011 Foreign Exchange Fee Transportation Fee MBNA Hospitality Division Environment Fee Shopping Cart Income Employee (Paid) Rental Parking Garage Storage Valet/Overdue Charge Road Safety Fee Avis 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 $42,257,572 $66,212 2010* 38,181,518 49,232 2011* 40,271,615 67,182 Concession Revenue 182,626 Underreported Concession Fees Underpaid 4,815 One Time Late Payment Fee (5%) 220 Interest Accrued (18%) 2,636 Total Due to the Port $7,671 * No fee due on understated revenue for this period because MAG was greater than concession fee. Recommendations: We recommend management: Seek and recover approximately $7,671 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 42,257,572 9,423 1,954 31,404 4,050 18,694 687 66,212 42,323,784 4,232,378 4,565,363 4,403 220 7,259 - 4,403 412 4,815 2,856 7,671 Oct-09 3,182,640 1,848.55 2,533 (17,745) 909 (12,454) 3,170,186 317,019 338,167 - 37 - - 298 Sep-09 4,019,113 513.20 4,131 (3,589) 841 1,896 4,021,009 402,101 401,911 190 38 108 - 2,636 Concession Fee Per Audit Amount Due to the Port Aug-09 5,440,767 3,825 6,676 1,438 11,939 5,452,706 545,271 544,077 1,194 39 698 - - 1,106 1,892 Credit Over Issued At Year End True Up Concession Fee Due To The Port Plus Late Fee & Interest Accrued Jul-09 5,158,178 1,185.47 - 1,092 4,526 11,630 18,433 5,176,611 517,661 515,818 1,843 40 2,949 Jun-09 3,982,234 698.73 3,563 5,050 2,450 11,762 3,993,996 399,400 398,223 1,176 41 723 1,900 May-09 3,340,131 631.75 1,548 2,028 2,057 - 6,265 3,346,396 334,640 338,167 - 42 Apr-09 3,355,202 262.38 738 1,737 1,897 4,634 3,359,836 335,984 338,167 - 43 11 Mar-09 3,208,690 1,487.68 1,693 3,561 - 6,742 3,215,432 321,543 - - 338,167 - 44 Feb-09 2,731,489 1,036.19 2,726 3,762 2,735,251 - 273,525 338,167 - 45 Jan-09 2,511,417 1,146.32 124 932 1,539 3,741 2,515,158 251,516 338,167 - 46 - - - - Dec-08 2,483,980 227.74 2,038 711 2,977 2,486,957 248,696 338,167 - 47 - - - Nov-08 2,843,731 384.93 2,152 3,291 687 6,515 2,850,246 285,025 338,167 - Add'l Concession Payable 48 Interest Adjusted Gross Revenue (a ) + (b ) Concession Fee Payable - 10% Concession Fee Reported by Avis (MAG & %) # of Months to Current One Time Late Payment Charge 5% Interest Rate Annually 18% SCHEDULE A - GROSS REVENUE UNDERREPORTING FOR THE 12 MONTHS ENDED OCTOBER 31, 2009 INTEREST CALCULATED AS OF 10/31/2012 ) CPA year-end true up Gross Revenue (a FINDINGS: ADD E - Transaction (Rental Agreements with Employees for Cars that are Owned by the Renting Location) F - Transaction (Rental Agreements with Employees for Cars that are Not Owned by the Renting Location) No-show Revenue - 4204275 Misc Vendor Recovery - 4204613 Foreign Exchange Fee - 4404620 MBNA Hospitality Division Total Additions (b ) or 1.5% Per Month Total Add'l Concession Payable and Payable Total 38,181,518 24,708 (3,485) 27,734 275 49,232 38,230,750 3,823,075 4,438,700 (380,700) 4,058,000 Oct-10 3,344,231 2,432 581 917 3,930 3,348,161 334,816 338,167 Sep-10 3,910,254 3,041 630 18,594 22,265 3,932,519 393,252 391,025 Net Payment from Avis Aug-10 5,223,437 2,673 597 1,185 4,455 5,227,892 522,789 522,344 Credit Issued at Fiscal Year End 275 877 Jul-10 4,653,004 2,509 3,661 4,656,665 465,666 465,300 Jun-10 3,546,975 2,627 (5,978) 944 (2,407) 3,544,568 354,457 354,698 May-10 2,936,764 1,679 5,677 780 8,136 2,944,900 294,490 338,167 Apr-10 2,738,143 1,026 1,151 941 3,118 2,741,261 274,126 338,167 2,712,429 1,297 834 12 Mar-10 2,131 2,714,560 271,456 338,167 Feb-10 2,555,711 1,620 915 699 3,234 2,558,945 255,895 338,167 Jan-10 2,119,821 2,459 175 662 3,296 2,123,117 212,312 338,167 Dec-09 2,078,303 1,342 55 702 - 275 2,374 2,080,677 208,068 338,167 599 SCHEDULE B - GROSS REVENUE UNDERREPORTING Nov-09 2,362,447 2,003 - (7,563) (4,961) 2,357,486 235,749 338,167 ) = c AVIS RENT A CAR SYSTEM, INC FOR THE 12 MONTHS ENDED OCTOBER 31, 2010 ) CPA year-end true up Gross Revenue (a ) + (b FINDINGS: ADD No-show Revenue Misc Vendor Recovery Foreign Exchange Fee MBNA Hospitality Division ) Total Additions (b Adjusted Gross Revenue (a Concession Fee Payable - (c) x 10% Concession Fee Reported Total 40,271,615 50 1,280 (24) 7 5 (76) 10,310 23,872 5,469 26,290 67,182 40,338,797 4,033,880 4,549,301 (491,301) 4,058,000 Oct-11 3,084,575 180 7 5 2,099 1,612 450 3,560 7,912 3,092,487 309,249 338,167 Sep-11 3,944,533 6 1,689 3,414 931 4,764 10,804 3,955,337 395,534 394,453 Net Payment from Avis Aug-11 5,457,534 200 8 1,611 2,998 1,007 4,611 10,435 5,467,969 546,797 545,753 Credit Issued at Fiscal Year End 150 9 Jul-11 5,062,395 1,212 2,451 469 3,073 7,364 5,069,758 506,976 506,239 Jun-11 3,975,219 150 8 923 2,096 490 2,220 5,887 3,981,106 398,111 397,522 May-11 2,960,724 100 (6) (76) 728 1,674 362 2,540 5,322 2,966,046 296,605 338,167 Apr-11 2,937,765 50 100 641 1,792 278 967 3,828 2,941,593 294,159 338,167 3,126,428 100 (18) 462 232 13 Mar-11 1,397 (83) 2,090 3,128,518 312,852 338,167 Feb-11 2,607,471 50 (11) 618 3,818 224 810 5,509 2,612,980 261,298 338,167 Jan-11 2,205,133 50 (13) 205 315 598 1,821 2,976 2,208,109 220,811 338,167 Dec-10 2,317,899 100 (11) 122 351 36 973 1,571 2,319,469 231,947 338,167 Nov-10 2,591,940 100 4 1,954 392 SCHEDULE C - GROSS REVENUE UNDERREPORTING 1,034 3,484 2,595,425 259,542 338,167 ) = c AVIS RENT A CAR SYSTEM, INC FOR THE 12 MONTHS ENDED OCTOBER 31, 2011 CPA year-end true up Gross Revenue (a ) ) + (b FINDINGS: ADD Parking garage storage Valet/Overdue charge VLF - 4205597 Transportation fee Environment Fee - 4204276 State Surcharge Shopping Cart Income - 4204269 No-show Revenue - 4204275 Misc Vendor Recovery - 4204613 Foreign Exchange Fee - 4404620 ) Total Additions (b Adjusted Gross Revenue (a Concession Fee Payable - (c) x 10% Concession Fee Reported
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