Internal Audit Report

Gate Gourmet, Inc

Lease and Concession Compliance Audit

January 1, 2008 through December 31, 2009




Issue Date: October 05, 2010
Report No. 2010-14

Internal Audit 
Gate Gourmet, Inc; Agreement No. 42
Audit Period: January 1, 2008  December 31, 2009

Table of Contents
Internal Auditor's Report ................................................................................................... 3 
Executive Summary ........................................................................................................... 4 
Background ........................................................................................................................ 5 
Audit Objectives ................................................................................................................ 5 
Audit Scope ........................................................................................................................ 5 
Audit Approach .................................................................................................................. 6 
Conclusion ......................................................................................................................... 6 
Schedule of Findings and Recommendations ................................................................ 7 
1.    Untimely Payments 












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Internal Audit 
Gate Gourmet, Inc; Agreement No. 42
Audit Period: January 1, 2008  December 31, 2009

Internal Auditor's Report
We have completed an audit of the Lease and Concession Agreement, as amended, between the Port of
Seattle and Gate Gourmet, Inc. The purpose of the audit was to determine the following:
1)  Reported concession was complete, properly calculated and remitted timely to the Port.
2)  Port and the lessee complied with provisions of the Lease and Concession Agreement.
3)  Lease and Concession Agreement, as amended, complies with applicable state and Port requirements.
We examined information related to a two-year period from January 1, 2008, through December 31, 2009. 
We conducted our audit using due professional care. We planned and performed the audit to obtain
reasonable assurance as to compliance with significant provisions of the agreement, including complete 
and timely reporting of concessionable revenues.
Gate Gourmet, Inc. materially complied with the terms of the Lease and Concession agreement, and the
agreement itself complies with applicable state and Port requirements. However, the audit disclosed
instances of late payments.
We extend our appreciation to the management and staff of Aviation Business Development, and
Accounting & Financial Reporting for their assistance and cooperation during the audit.


Joyce Kirangi, CPA
Director, Internal Audit






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Internal Audit 
Gate Gourmet, Inc; Agreement No. 42
Audit Period: January 1, 2008  December 31, 2009

Executive Summary
Audit Scope and Objective The purpose of the audit was to determine the following:
1)  Reported concession was complete, properly calculated and remitted timely to the Port.
2)  Port and the lessee complied with provisions of the Lease and Concession Agreement.
3)  Lease  and  Concession  Agreement,  as  amended,  complies  with  applicable  state  and  Port
requirements.
We examined the books and records of Gate Gourmet, Inc. for a two-year period from January 1, 2008
through  December  31,  2009.  Aviation  Business  Development  has  the  primary  responsibility  for
administering and monitoring the agreement to ensure compliance with agreed-upon terms.

Agreement Terms Gate Gourmet, Inc. (GGI) provides in-flight catering services including the preparation
and distribution of in-flight foods, beverages, and related services to domestic and overseas airlines at
Seattle Tacoma International Airport.
The terms of the agreement provide for a 7% concession fee on the gross sales for catering services to 
airlines, and a 3.5% concession fee on the gross sales to non-airline parties. The gross sales include sales
by any licensee or other party authorized to make sales in connection with the business operated by Gate
Gourmet, Inc.
A monthly rent is payable in advance, on or before the first day of each month, without notice from the Port.
The concession is due monthly within 15 days following the end of each calendar month. For untimely
payments, the agreement provides interest to be accrued from the due date until paid.

Audit Result Summary Gate Gourmet, Inc. materially complied with the terms of the Lease and
Concession agreement, and the agreement itself complied with applicable state and Port requirements.
However, the audit disclosed a number of late payments resulting in financial of $2,978.






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Internal Audit 
Gate Gourmet, Inc; Agreement No. 42
Audit Period: January 1, 2008  December 31, 2009

Background
The lease agreement was originally entered into with United Airlines in August 1989 and was later assigned
to Dobbs International Services, Inc. in May 1993. Gate Gourmet, Inc. merged with Dobbs International
Services in January 2000.
Gate Gourmet (GG) is the world's largest independent provider of airline catering and provisioning services.
GG delivers daily, on a global basis, to more than 250 airline customers and currently has more than 100
flight kitchens located in over 25 countries.
The terms of the agreement provide for a 7% concession fee on the gross sales for catering services to 
airlines, and a 3.5% concession fee on the gross sales to non-airline parties, with only the following 
acceptable offsets or deductions:
1)  Returns and refunds
2)  Taxes imposed and collected by Lessee as agent for its taxing body
3)  Meals furnished to employees of Lessee
Financial Highlights
Reported
Paid
Year         Gross
Concession
Revenue
2007          14,642,345    $1,029,383 
2008          14,180,062     1,098,441 
2009          11,389,215       798,665 
Total           $40,211,622     $2,926,489 
Source: PROPworks and PeopleSoft
Audit Objectives
Our audit objective was to determine the following: 
1)  Reported concession was complete, properly calculated and remitted timely to the Port.
2)  Port and the lessee complied with provisions of the Lease and Concession Agreement.
3)  Lease  and  Concession  Agreement,  as  amended,  complies  with  applicable  state  and  Port
requirements.
Audit Scope
The scope of the audit covered the period of January 1, 2008 through December 31, 2009.


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Internal Audit 
Gate Gourmet, Inc; Agreement No. 42
Audit Period: January 1, 2008  December 31, 2009

Audit Approach
To achieve our audit objectives, we performed the following procedures:
Read and analyzed the lease agreement, as amended. 
Reviewed applicable state and local rules and regulations.
Identified significant provisions in the agreement.
Obtained necessary financial and non-financial data from the lessee.
Assessed relevant risks associated with the agreement.
Designed and executed audit procedures based on risk.
Analyzed data (internal & external) to determine completeness & compliance. This included
performing the following additional procedures:
o  Reconciliation of the reported gross receipts to the lessee's accounting records to ensure
completeness and consistency.
o  Reconciliation of the certified Audited Schedule of Gross Receipts to lessee's accounting
records to ensure completeness.
o  Verification that concession fees were paid timely and intact.
o  Recalculation of concessions and related fees to ensure accuracy.
Conclusion
Gate Gourmet, Inc. materially complied with the terms of the Lease and Concession agreement. The
agreement itself is also in compliance with applicable state and Port requirements. The audit; however,
disclosed a number of late payments, resulting in finance charges of approximately $2,978.








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Internal Audit 
Gate Gourmet, Inc; Agreement No. 42
Audit Period: January 1, 2008  December 31, 2009

Schedule of Findings and Recommendations
1.  Untimely Payments 
Under the agreement, as amended, Section 3 (a) and Section 4 (e) stipulate specific payment terms for
monthly rent and concession fee payments as follows:
Rent shall be payable in advance on or before the first day of each month.
Concession Fee shall be paid within 15 days following the end of each month.
For late payments, the agreement provides under Section 20, interest to be accrued at 18% per annum
or the maximum allowed by the law, whichever is less.
We reviewed the payment history and noted 21 instances of late payments in 2008, and 20 instances of
late payments in 2009.

# of Instances of
Year    Type of Payment   Range of Days Late                   Interest (18%/yr) 
Late Payments
Monthly Rent             1 to 18               12                   $494 
2008
Concession Fees          1 to 8                9                  1,564 
Monthly Rent              1 to 4                9                     101 
2009
Concession Fees          1 to 5               11                    819 
$2,978 
The auditor's calculation resulted in interest charges of approximately $2,978 for the audit period.

Recommendation 
We recommend management collect $2,978 in interest charges, and/or work with the lessee to ensure
timely payments.

Management Response
Aviation Business Development (AVBD) and Accounting & Financial Reporting (AFR) staff appreciate
the insight provided by the internal audit regarding interest (finance) charges.  The AFR department is
continuing to seek opportunities to resolve longstanding challenges with the PeopleSoft financial
system's shortcoming regarding applying finance charges on late payments, even though the impacts
from this shortcoming are immaterial when taken as a whole.  AVBD and AFR staff will address the
audit's observations involving incompleteness in the application of finance charges and determine
appropriate disposition involving the affected tenant.

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