Dilettante Chocolate
Internal Audit Report Lease & Concession Audit Dilettante Chocolates Inc. June 1, 2010 May 31, 2013 Issue Date: August 6, 2013 Report No. 2013-14 Internal Audit Report Dilettante Chocolates (#621) June 1, 2010 May 31, 2013 Table of Contents Transmittal Letter ........................................................................................................................ 3 Executive Summary .................................................................................................................... 4 Background ................................................................................................................................ 5 Audit Scope and Methodology .................................................................................................... 5 Conclusion .................................................................................................................................. 6 2 of 6 Internal Audit Report Dilettante Chocolates (#621) June 1, 2010 May 31, 2013 Transmittal Letter Audit Committee Port of Seattle Seattle, Washington We have completed an audit of the lease and concession agreement with Dilettante Chocolates Inc. We reviewed information relating to the lease and concession agreement with Dilettante from June 1, 2010 through May 31, 2013. 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 staff of Aviation Business Development and Accounting and Financial Reporting for their assistance and cooperation during the audit. Joyce Kirangi, CPA, CGMA Director, Internal Audit Audit Team: Responsible Management Team: Brian Nancekivell, Sr. Internal Auditor Deanna Zachrisson, Mgr. Concessions Management Jack Hutchinson, Audit Manager James Schone, Dir. AV Business Development 3 of 6 Internal Audit Report Dilettante Chocolates (#621) June 1, 2010 May 31, 2013 Executive Summary Audit Scope and Objective The purpose of the audit was to determine whether: 1. The reported concession revenue is complete, properly calculated, and remitted timely. 2. The lessee complied with significant provisions of the lease and concession agreement. The scope of our audit covered the period from June 1, 2010 through May 31, 2013. Background Dilettante Chocolates operates a location in the central terminal at the SeaTac Airport. Their product line consists of crafted chocolates, blends of coffee, desserts, truffles and confectionary gift items. Dilettante entered into the current lease and concession agreement with the Port of Seattle on March 2, 2004, for a 10-year term ending May 31, 2015. The agreement provides for a specific concession based on gross receipts at tiered rates, ranging from 8% to 14%. There are provisions for finance charges and interest if the payment is not received within a ten-day grace period. Audit Result Summary Concession revenue reported by Dilettante was reported completely, calculated properly and remitted timely. Dilettante materially complied with significant provisions of the lease and concession agreement. 4 of 6 Internal Audit Report Dilettante Chocolates (#621) June 1, 2010 May 31, 2013 Background Dilettante Chocolates was founded in 1976 in downtown Seattle. Their product line consists of crafted chocolates, blends of coffee, desserts, truffles and confectionary gift items. Including operations in the SeaTac Airport location at the central terminal, Dilettante has six (6) local retail locations in the region. Dilettante entered into the current lease and concession agreement with the Port of Seattle on March 2, 2004 for a 10-year term ending May 31, 2015. The lease and concession agreement states that the Minimum Annual Guarantee (MAG) payments are due on the first of each month. The percentage concession fee is due on the 15th of the following month, along with a statement of gross receipts for the previous month according to the following schedule: Concession Categories Gross Receipt % YTD* Gross Receipts less than $300,000 8% YTD* Gross Receipts $300,000 - $400,000 12% YTD* Gross Receipts greater than 14% $400,000 Note*: Indicates Year-to-Date The agreement provides for finance charges and interest if a payment is not received within a ten-day grace period. The table below summarizes the concession revenue received from Dilettante for the audit period. Gross Concession Concession Term Revenues Paid June, 2010 to May, 2011 $1,528,049 $237,503 June, 2011 to May, 2012 $1,565,574 $243,777 June, 2012 to May, 2013 $1,558,850 $237,626 Total $4,652,473 $718,906 Source: PROPWorks Audit Scope and Methodology We reviewed information for the period from June 1, 2010 to May 31, 2013. We utilized a risk-based 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 Dilettante 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's financial records including point-of-sale data, general ledger, bank records, and Washington State Business and Occupation tax (B&O tax) records along with the 5 of 6 Internal Audit Report Dilettante Chocolates (#621) June 1, 2010 May 31, 2013 reported revenues to the Port. We selected sales from the month of August 2011and June 2012 for testing procedures. We traced the revenue from the point-of-sale to the general ledger, to deposited records, to B&O tax records, and to the revenues Dilettante 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 allowed, in the agreement, we calculated the expected interest and finance charges, if not previously assessed. 3. Compliance with insurance requirements We identified the insurance coverage required by the 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. 4. Compliance with annual reporting requirements We identified the annual reports required by the agreement for the audit period and determined whether the lessee had submitted the reports to the Port in accordance with the agreement. 5. Compliance with surety requirements We identified the security coverage required by the 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. Conclusion Concession revenue reported by Dilettante was reported completely, calculated properly and remitted timely. Dilettante materially complied with significant provisions of the lease and concession agreement. 6 of 6
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