Internal Audit Report

Lease & Concession Audit
Seattle Restaurant Associates
Food and Beverage Agreement (#439)

January 1, 2009  December 31, 2011




Issue Date: October 1, 2013
Report No. 2013-13

Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011

Table of Contents

Transmittal Letter ........................................................................................................................ 3 
Executive Summary .................................................................................................................... 4 
Background ................................................................................................................................ 5 
Audit Scope and Methodology .................................................................................................... 6 
Conclusion .................................................................................................................................. 7 
Schedule of Findings and Recommendations ............................................................................ 8 
1. SRA DID NOT PROVIDE ADEQUATE DOCUMENTATION TO SUPPORT SALES NUMBERS, AS
REQUIRED BY THE AGREEMENT 
2. SRA DID NOT TRANSMIT ACCOUNTING RECORDS AND OTHER REQUESTED DOCUMENTS IN A
TIMELY MANNER 









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Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011
Transmittal Letter

Audit Committee
Port of Seattle
Seattle, Washington

We have completed an audit of the Seattle Restaurant Associates (RSA) Lease and Concession
Agreement. We reviewed information relating to a three-year period from January 1, 2009  December
31, 2011.
We conducted the 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.
We extend our appreciation to the Aviation Business Development Office and Accounting and Financial
Reporting staff for their assistance and cooperation during the audit.


Joyce Kirangi, CPA, CGMA
Director, Internal Audit

Audit Team:                                   Responsible Management Team:
Tyler Winchell, Internal Auditor                     Deanna Zachrisson, Mgr. Concessions Management
Jack Hutchinson, Audit Manager                 James Schone, Dir. AV Business Development





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Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011
Executive Summary

Audit Scope and Objectives The purpose of the audit was to determine whether:
1.  The reported concession is complete, properly calculated, and remitted timely.
2.  The lessee complied with significant provisions of the lease and concession agreements.
The scope of our audit covered the period from January 1, 2009 through December 31, 2011.
Background The agreement provides a Minimum Annual Guarantee, or fees based on a
percentage of Seattle Restaurant Associates' gross receipts. These percentage fees range from 14%
on food and beverage sales and up to 27% on souvenirs.
The percentage fee is due on or before the 15th of each month for the preceding month. For untimely
payments, the agreement provides for a one-time late fee of 5% of the overdue amount and an
accrued interest charge of 18% per-year from the due date until paid.
Audit Result Summary Seattle Restaurant Associates (SRA) materially complied with the terms of
the Lease and Concession agreement, with two exceptions: we identified a minor revenue discrepancy
for one of the subtenants, and SRA did not provide requested documents in a reasonable time frame as
required by the agreement. See Schedule of Findings and Recommendations in this audit report.










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Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011
Background
Seattle Restaurant Associates (SRA) is a joint venture between HMS Host and Uwajimaya. HMS Host
is  the  agreement's  managing  partner.  SRA  operates  or  oversees  ten  unique  food  and  beverage
concessions at Seattle-Tacoma International Airport (STIA), with a focus on regional brands and
nationally recognized chains. These concessions include a mixture of both full and self-service eateries.
SRA currently has two subleases with certified Disadvantaged Business Enterprises as follows: The
Waji's at Sea-Tac is operated by Concourse Concessions, LLC and the Mountain Room Bar is
operated by SeaTac Bar Group.








Under the lease and concession agreement, SRA self-reports its monthly gross receipts for all of its
operations, including those run by the subtenants. The agreement defines gross receipts as all sales,
less tips to employees, refunds for unsatisfactory services, complimentary meals and discounts and all 
applicable sales taxes levied on customers.
The agreement calls for different percentage fees for separate sales categories. The table below shows 
the gross receipts by category, along with the categories' respective rates:
1
Seattle Restaurant Associates Gross Receipts by Concessionable Category
January 1, 2009  December 31, 2011 
Concession Category            Rate              2009              2010             2011
Food & Beverage Sales            14%          $4,521,394         $4,306,984        $4,552,635 
Branded Food &                  12%
6,031,557          6,034,610          6,346,805
Beverage Sales
Alcoholic Beverage Sales          18%           3,465,210          3,337,565          3,557,223
Souvenir Merchandise             27%                  0                 0                 0
Advertising Revenue              15%                   0                  0                 0
TOTAL                                  $14,018,161       $13,679,159       $14,456,663 
Data Source: Seattle Restaurant Associates PeopleSoft Financials, CPA-Audited Reports for 2009-2011.
1
Data Notes: Gross Sales Receipts are rounded to the nearest dollar.

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Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011
Audit Scope and Methodology
We reviewed information for the period from January 1, 2009 - December 31, 2011. We utilized a riskbased
audit approach from planning to testing. We gathered information through research, interviews,
observations and analytical reviews, in order to obtain a complete understanding of the Seattle
Restaurant Associates lease and concession agreement.
We applied additional detailed audit procedures to areas with the highest likelihood of significant
negative impact as follows:
1.  Completeness of Reported Revenue
We reviewed lessee financial records including the lessee's point of sale data, general ledger,
and bank records, along with the revenue reported to the Port. We selected one week of sales
from the months of February and August in 2009, 2010, and 2011 for a total of six weeks. The
testing period involved four SRA-operated food and beverage locations and two of its subtenantoperated
locations. We traced the revenue from the point-of-sale to the general ledger and
deposit records, and ultimately to the revenues reported to the Port.
2.  Timely Submission of Rent and Concession Payments
We reviewed the Port's records to determine whether the rent and concession payments were
received on time. In the event that payments were received later than the ten-day grace period
identified in the lease and concession agreements, we calculated the expected interest and
finance charge, if it had not been assessed.
3.  Compliance with Branded Food Reporting Requirements
We identified the requirements for reporting concession at the reduced "Branded Food &
Beverage" (Branded Food) concession rate. We reviewed franchise agreements and lessee
documentation of royalty payments to determine whether the locations reporting Branded Food
during the audit period met the criteria for the Branded Food rate.
4.  Compliance with Insurance Requirements
We identified the insurance coverage required by the food and beverage agreement for the
audit period and determined whether the lessee had obtained sufficient coverage and submitted
evidence to the Port in accordance with the agreement.
5.  Compliance with Letter of Credit Requirements
We identified the letter of credit amounts required by the food and beverage agreement for the
audit period and determined whether the lessee had obtained the appropriate letter of credit and
submitted evidence to the Port in accordance with the agreement.


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Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011
6.  Compliance with Annual Reporting Requirements
We identified the annual reports required by the food and beverage agreement for the audit
period and determined whether the lessee had submitted the reports to the Port in accordance
with the agreement.
7.  Compliance with Disadvantaged Business Enterprise Requirements
We identified the disadvantaged business enterprise requirements for the food and beverage
agreement for the audit period and determined whether the lessee had submitted the required
information to the Port in accordance with the agreement.

Conclusion
Seattle Restaurant Associates (SRA) materially complied with the terms of the Lease and Concession
agreement, with two exceptions: we identified a minor revenue discrepancy for one of the subtenants,
and SRA did not provide requested documents in a reasonable time frame as required by the
agreement. See Schedule of Findings and Recommendations in this audit report.











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Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011
Schedule of Findings and Recommendations
1. SRA DID NOT PROVIDE ADEQUATE DOCUMENTATION TO SUPPORT GROSS SALES, AS
REQUIRED BY THE AGREEMENT
Section 1.11 of the food and beverage lease agreement states:
"Gross Receipts" shall mean the aggregate gross amount of revenue derived from all sales of
food, beverage and all other merchandise of any type or kind transacted
The agreement excludes certain items from gross receipts, such as tips paid to employees, refunds,
complimentary meals, taxes, etc.
Our initial analysis of the lessee's financial records determined that the gross receipts for SeaTac
Bar Group were underreported to the Port. SeaTac Bar Group is one of two subtenants operating
under this agreement. The lessee-provided sales reports for the three weeks selected for detailed
testing did not agree with the daily bank deposits. At first, the lessee-provided reports, data, and
explanations did not account for the variance. Upon repeated requests for further information, the
lessee provided additional documentation of the difference for the entire audit period and asserted
that they incorrectly recorded upcharges for alcoholic beverages, which caused the variances. This
assertion could not be substantiated because of lack of detailed sales data.
Point-of-sale data (such as cash register tapes) or similar transaction level information would have
explained the variance. However, the lessee could not provide such information because the
subtenant did not maintain such record or information.
Section 7 of the lease agreement states:
Lessee shall retain all accounting records, including cash register tapes and guest checks, for
not less than three (3) years after the close of the applicable Agreement Year or until the close
of any ongoing audit.
We identified a difference of $6,244 between the reported and collected amounts for the audit period.
This resulted in an additional concession of $1,102. After applicable late charges and interest are
applied, a total of $1,703 is owed to the Port.
We realize that the amount questioned above is small relative to the total concession paid to the
Port. However, the initial lack of cooperation from the subtenant, continuing challenges with data
requests, and the lack of detailed accounting records to support the sales, raises questions as to
the validity and/or accuracy of the financial data provided and the concession paid to the Port. This
lack of cooperation required the managing partner of this agreement, HMS Host, to issue a notice of
default before the subtenant responded to the auditor's initial request.
Recommendation
We recommend Port management:
Seek recovery of $1,703 in underpaid concession fees, late charges, and interest.

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Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011
Work with the lessee to ensure compliance with record keeping requirements and compliance
with audit requirements.

Management Response
Management acknowledges that one Airport Concessions Disadvantaged Business Enterprise (ACDBE)
subtenant, SeaTac Bar Group, was uncooperative with Internal Audit's requests for data and could not
substantiate its reported revenue. Management further agrees with Internal Audit's assessment that the 
subtenant's records do not meet the requirements of the SRA agreement and, based on the records available,
revenues were underreported and rent underpaid. Therefore, with respect to the findings of the current audit
report:
Management will work with SRA to better understand the cause of their subtenant's underpaid
concession fees, and recover those amounts together with late charges and interest.
Management will work with SRA to bring the subtenant's accounting records into full compliance with
the lease agreement.

2.  SRA   DID   NOT   TRANSMIT   ACCOUNTING   RECORDS   AND   OTHER   REQUESTED
DOCUMENTS IN A TIMELY MANNER
We transmitted the audit notification letter, dated August 24, 2012, to Seattle Restaurant
Associates requesting certain data be available "in an electronic format within two weeks
following the receipt of this letter." 
Section 7 of the lease and concession agreement requires timely availability of accounting
documents for auditing purposes:
It is further agreed that a representative designated by the Port shall be allowed to inspect and
audit Lessee's books and records with reference to the determination of any such matters at
all reasonable times.
During the engagement, the auditors experienced multiple delays in securing the records
necessary to complete the audit. Because the accounting records were not maintained locally, the
auditors requested SRA electronically transmit the records. The auditors accepted records in raw
forms and piecemeal to expedite the process. The following schedule clearly shows that the
timeline between written request and receipt were unreasonable, making the audit process
inefficient:
Elapsed Time 
Subtenant Records Requested        Requested Date     Received Date
(In Days)
Cash Register Receipt Data                                     3-4-13
2-7-13                                    25
(aka Point-of-Sale)                                                (partial)
Cash Register Receipt Data                                     4-17-13
2-7-13                                    69
(aka Point-of-Sale)                                              (remainder)
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Internal Audit Report
Seattle Restaurant Associates (#439)
January 1, 2009  December 31, 2011
Franchise Agreements                    3-5-13             6-20-13              107
Schedule of Royalty Payments              3-5-13             6-20-13              107
The elapsed times exceed the "reasonable times" required under the agreement. These
unreasonable times delayed the conclusion of the audit from the originally scheduled date of April
2013 to October 2013.
Recommendation
We recommend Port management continue to work with SRA to ensure compliance with the
transmittal of accounting records for audit purposes.
Management Response
Management acknowledges the audit of the SRA agreement took too long to complete. However,
management believes it is important to acknowledge the collaborative effort that took place between Airport
and Internal Audit staff in order to achieve compliance when SRA failed to provide timely responses.
Therefore, with respect to the findings of the current audit report:
Management will work with SRA to address the issues with providing requested materials, including a
commitment to voice confidentiality concerns immediately as they arise.
As stated above, management will work with SRA to establish new protocols for review of license
agreements in order to expedite this work, including pre-negotiated confidentiality agreements.
Management will consider the options afforded by the lease agreement if timely transmittal is not
demonstrated for future requests for records.
Management will work to recover the costs of the audit.







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