Presentation
INTERNAL AUDIT COMPLETED AUDITS - 2017 AUDIT PLAN CARRYOVER Audit Title Type Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Host International, Inc. Limited Compliance Delta Lounge Operational P66 Norwegian Cruise Line Partnership Operational Employee Parking Operational Transportation Network Companies Operational Terminal 91 Dockage Operational 2018 AUDIT PLAN STATUS Audit Title Type Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Beecher's Handmade Cheese Limited Compliance Disbursements / Accounts Payable Operational Sky Chef's Inc. Limited Compliance Capital - N. Satellite Operational Dollar Rent a Car Limited Compliance TNC's Rematch (EKPI's) Operational Thrifty Car Rental Limited Compliance Fox Rent-A-Car Limited Compliance Marine Maintenance Shops Operational Capital - W. Fire STA Operational Parking Soft System (Protiviti) IT Change Management - AVM (Point B) IT Northwest Seaport Alliance Operational Data Centers - AVM IT Cruise Related Investments Operational SeaTac Utilities Operational Capital - IAF Operational Taxi Cabs (Eastside for Hire) Operational Key: Complete In Process Not Started INTERNAL AUDIT UPDATES / NEW INITIATIVES I. ISSUE FOLLOW-UP PROCESS II. INTERNAL SELF ASSESSMENT III. STREAMLINE LIMITED CONTRACT COMPLIANCE REPORT 2 INTERNAL AUDIT ISSUE FOLLOW-UP PROCESS Monitoring of prior internal audit issues Internal Audit Standards require a system to monitor that management actions have been effectively implemented Generally audit issues are being addressed, "Red" issues have explainable business reasons. 3 INTERNAL AUDIT INTERNAL SELF-ASSESSMENT SCOPE OF REVIEW Aligned Generally Accepted Government Auditing Standards (GAGAS) and International Professional Practices Framework (IPPF) to the Port's Internal Audit Department Policies and Operating Procedures. Reviewed work papers of three audits from the 2017 audit plan to evaluate compliance with GAGAS and IPPF. Provided recommendations to audit management. RESULTS The Port of Seattle Internal Audit Department complied with applicable GAGAS and IPPF Standards and has adequate internal quality control processes in place to facilitate compliance. 4 INTERNAL AUDIT INTERNAL SELF-ASSESSMENT RECOMMENDATIONS Implement an annual formal internal self-assessment process that includes a summary of results and recommendations for corrective action - (GAGAS 3.93 / IPPF 1320). Update procedures to reflect that the audit program for each engagement is approved prior to the start of fieldwork by audit management (IPPF 2240.A1). Update procedures to reflect that each auditor is required to complete at least 20 hours annually of Continuing Professional Education and retain course outlines / materials - (GAGAS 3.76). Identified opportunities to streamline the internal audit process. 5 NEW LIMITED CONTRACT COMPLIANCE REPORT INTERNAL AUDIT REPORT LIMITED CONTRACT COMPLIANCE CONCESSION NAME JANUARY 2015 DECEMBER 2017 ISSUE DATE: JUNE 25, 2018 REPORT NO. 2018-09 Limited Contract Compliance INTERNAL AUDIT January 2015 December 2017 EXECUTIVE SUMMARY Internal Audit (IA) completed an audit of the Lease and Concession Agreement between XXX and the Port of Seattle (Port). No exceptions were identified or we identified the following exception(s): AUDIT SCOPE AND METHODOLOGY 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 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. The period audited was January 2015 through December 2017 and included the following audit procedures: Revenue Completeness and Accuracy Verified the mathematical accuracy of concession fees. Traced concession payments to Port records to verify payments were received by Agreement dates. Agreed revenue reported to the Port to the Concessionaire's general ledger, revenue reports, and z-tapes (source data). This audit did not include an evaluation of internal controls. Glenn Fernandes, CPA Director, Internal Audit RESPONSIBLE MANAGEMENT TEAM Name, Title Name, Title Name, Title 7 OPERATIONAL AUDITS 1) North Satellite Airport Renovation and Expansion Project (NSAT) 2) TNC Re-match: Environmental Key Performance Indicator (E-KPI) 3) Disbursements / Accounts Payable 8 INTERNAL AUDIT NORTH SATELLITE RENOVATION AND EXPANSION PROJECT BACKGROUND The Port and Alaska Airlines are partnering to create an efficient "Curb to Gate" operation at the north end of the Airport. As of January 2018, total Port costs were $98.3 million from a Commission approved budget of $658.3 million. The project is expected to be complete in the spring of 2021. RESULTS 1. (High) A letter of understanding (LOA) that the Port issued to Alaska, to assure alignment, was not legally binding, but nonetheless had the ability to materially impact the project's cost and timeline. Failure to adhere to this LOA resulted in changes that increased the cost of the project by approximately $31.8 million and delayed the schedule by approximately 39 weeks. 2. (Medium) The process utilized to reimburse Alaska for work performed, did not adequately involve key stakeholders to assure that what was reimbursed, was aligned with the value received by the Port. 9 INTERNAL AUDIT NORTH SATELLITE RENOVATION AND EXPANSION PROJECT MANAGEMENT ACTION PLAN (IN PART) 1. For future projects, we will: Require tenants to possess or provide a strong technical team sufficient to meet the needs of the project. Develop an improved change management process into the Tenant Reimbursement Agreement to better control scope changes and to determine responsibilities for cost increases. Changes to design, scope, and schedule, will not be pursued without a written agreement. We will prepare a written letter and request reimbursement of $1.2 million from Alaska for the dual passenger doors. 2. Since 2017, Aviation performs all concept development for Port owned facilities through the On Call Planning consultants. This will make it unnecessary for tenants to develop concepts with the expectation of reimbursement from the Port. 10 INTERNAL AUDIT TNC RE-MATCH - ENVIRONMENTAL KEY PERFORMACE INDICATOR BACKGROUND Re-match was introduced at the airport on December 5, 2017. The program allows TNCs, including those that don't meet the miles per gallon restriction, who complete an airport drop-off, to immediately receive a pick-up request, without having to wait in the holding lot. Under Re-match, vehicles that don't meet the 45 MPG restriction are permitted to pick-up passengers, only if they receive a matched trip, after completing an airport drop-off. The Port uses the Environmental Key Performance (E-KPI) metric as a tool that was designed to demonstrate equivalency with the environmental performance of outbound, on-demand taxis at Sea-Tac Airport. It is expressed in units of lbs. of CO per typical passenger-trip and the formula sums the 2 Airport drop-off trip fuel consumption with the Airport pick-up trip fuel consumption multiplied by the carbon emissions per fuel consumed. 11 INTERNAL AUDIT TNC RE-MATCH - ENVIRONMENTAL KEY PERFORMACE INDICATOR RESULTS (High) The Re-match program is an innovative solution that reduces deadheading and greenhouse gases, while also having the potential to ease congestion at airport drives. However, the E-KPI in its current form could result in TNCs serving the airport with a fleet of vehicles that are not considered "green" vehicles. The graph below reflects a decline in deadheading but also a decline of the average MPG. The decrease in deadheading also lowers the average MPG allowed to comply with the current 10.82 E-KPI requirement. Deadheading % and MPG 80% 49 75% 47 70% 45 65% 43 Deadheading % 60% 41 Avg Pickup MPG 55% 39 Min Avg Pickup MPG 50% 37 45% 35 40% 33 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 12 INTERNAL AUDIT TNC RE-MATCH - ENVIRONMENTAL KEY PERFORMACE INDICATOR MANAGEMENT ACTION PLAN (IN PART) When the contract is renewed, or before any long term agreement is signed, we will review the overall TNC performance under the E-KPI approach to assure we continue to reduce emissions through highly efficient operations and service providers at the Airport. Additionally, assumptions made in the E-KPI equation will be more clearly described in the contract to eliminate any possible confusion about how the equation is applied. 13 INTERNAL AUDIT DISBURSEMENTS / ACCOUNTS PAYABLE BACKGROUND The disbursements function within the Accounting and Financial Reporting Department (AFR) reviews supporting documentation, general ledger coding, and enters invoice data into PeopleSoft. In early 2017, AFR began using COR360, a third party software designed to streamline and control invoice payments. COR360 gives employees, including those outside AFR, approval authority to request payment for invoices. The table below reflects disbursements for January 1, 2017 through December 31, 2017: 2017 DISBURSEMENTS BY TYPE METHOD AMOUNT % BY AMOUNT COUNT % BY COUNT Check $76,467,068 11% 6,174 43% Electronic Payments* 598,010,956 89% 8,137 57% TOTAL $674,478,024 100% 14,311 100% * Includes ACH, wire, and EFT 14 INTERNAL AUDIT DISBURSEMENTS / ACCOUNTS PAYABLE RESULTS 1. (Medium) A Port wide delegation of authority for approving invoice payments should be reviewed and approved by Executive Management and memorialized into Executive Policy (EX-2) guidance. Delegations of authority establish approval limits that generally correlate to the individual's level and responsibility within the organization. 2. (Medium) Opportunities were identified to improve internal controls. These opportunities include, implementing controls to disable user access when no longer needed, validating the accuracy of invoices entered into PeopleSoft, and segregating the responsibility of adding and approving vendors. These changes to internal controls align to best practices and would further refine processes. 15 INTERNAL AUDIT DISBURSEMENTS / ACCOUNTS PAYABLE MANAGEMENT ACTION PLAN (IN PART) 1. We acknowledge that the auditor recommendation enhances visibility in the control environment. As recommended, a higher Executive-level review and affirmation of payment authorization delegations will be implemented, to augment department management authorized delegations. AFR will extract the payment delegations currently contained in COR360 and incorporate them into the executive level EX-2 delegation schedules. 2. As recommended: Quarterly user access reviews will be put in place to identify and remove access when an employee transfers departments or the need is no longer necessary. AFR has put in place a review of COR360 payment delegations, each time a termination notice is received from HR. We will institute batch total controls between COR360 output and PeopleSoft Financials accounts payable system input, to validate completeness. AFR will work in partnership with CPO to assess this change. 16 LIMITED CONTRACT COMPLIANCE AUDITS 1) Sky Chefs, Inc. 2) CMC Investments, Inc. dba Dollar Rent-A-Car 3) Beecher's Handmade Cheese 17 INTERNAL AUDIT SKY CHEFS, INC. BACKGROUND Sky Chefs provides in-flight catering service, including the preparation and distribution of in-flight foods. Sky Chefs pays a monthly concession fee and land/building rent based on square footage (see table below). SKY CHEFS, INC. FISCAL YEAR GROSS REVENUES CONCESSION REVENUE LAND & BUILDING RENT 2015 $49,032,636 $3,428,844 $483,268 2016 51,612,608 3,611,374 483,268 TOTAL $100,645,244 $7,040,218 $966,536 * Data Source: PeopleSoft Financials RESULTS We concluded that the Lessee materially complied with the significant terms in the Agreement. 18 INTERNAL AUDIT DOLLAR RENT-A-CAR BACKGROUND CMC Investments, Inc. is a private company and operates under the name Dollar-Rent-A-Car. The agreement requires a Minimum Annual Guarantee (MAG) and a Percentage Fee equal to 10% of Concessionaire's gross revenues, provided the fee is higher than the monthly MAG. The agreement also requires the Concessionaire to collect a Customer Facility Charge (CFC) of $6 per rental day. The table below reflects total gross revenue, concession fees, and CFC fees: REPORTED GROSS REVENUE AND CONCESSION CALCULATION CUSTOMER FACILITY CHARGE AGREEMENT YEAR REPORTED GROSS REVENUES CONCESSION FEES REPORTED CFC FEES 2014 - 2015 $16,093,271 $1,609,327 $1,943,754 2015 - 2016 16,071,679 1,607,168 2,042,244 2016 - 2017 16,555,626 1,655,563 2,207,856 TOTAL $48,720,576 $4,872,058 $6,193,854 Data Source: PeopleSoft Financials and Propworks 19 INTERNAL AUDIT DOLLAR RENT-A-CAR RESULTS 1. (Medium) The Concessionaire did not report $343,326 in incidental gross revenues to the Port, resulting in $34,333 in Percentage Fees owed to the Port. 2. (Medium) The CFC was over-reported to the Port, by $19,596 for the audit period. This was primarily due to a mistake by Concessionaire in November 2015, which resulted in an overpayment of that month's CFC to the Port. 20 INTERNAL AUDIT DOLLAR RENT-A-CAR MANAGEMENT RESPONSE 1. Aviation Commercial Management (ACM) will seek to recover the underpaid Percentage Fees, together with any applicable late fees and interest charges. ACM will also communicate both verbally and in writing that the revenues identified above, are not permitted exclusions from revenue according to the Agreement. 2. Aviation Commercial Management will refund the overpaid CFC's. 21 INTERNAL AUDIT BEECHER'S HANDMADE CHEESE BACKGROUND Beecher's Handmade Cheese (Beecher's) is headquartered in Seattle and operates four cafs offering an assortment of fresh sandwiches, soups, salads, and cheeses. Beecher's pays the Port a Minimum Annual Guarantee (MAG) equal to eighty-five percent (85%) of the total amount paid by the Lessee for the previous year. In addition to the MAG, Beecher's pays a twelve percent (12%) concession fee, to the extent the percentage fee was higher than the monthly MAG payment. The table below reflects the concession revenue earned by the Port: BEECHER'S HANDMADE CHEESE YEAR GROSS SALES CONCESSION REVENUE 2014 $3,712,924 $445,551 2015 4,461,175 535,341 2016 5,748,587 689,831 2017 6,903,741 828,449 TOTAL $20,826,427 $2,499,172 * Data Source: PROPworks 22 INTERNAL AUDIT BEECHER'S HANDMADE CHEESE RESULTS (Medium) The Agreement requires the Lessee, in part, to maintain records for a period of three years. However, the daily point of sale data was not provided to Internal Audit in its original format; rather, an excel document was provided. Cash register z-tapes, in their original format, are necessary to obtain reasonable assurance to conclude on the accuracy of concession revenue. MANAGEMENT RESPONSE Due to unusual circumstances, Beecher's was unable to provide original documentation to support their reported sales. Airport Dining and Retail staff has communicated with Beecher's senior management about the requirement in their lease to provide sales documentation in its original format and have requested that they provide that documentation along with their 2018 certified annual sales report. 23
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