Report 05 FlyingFood

INTERNAL AUDIT REPORT 

FLYING FOOD GROUP, LLC 
LEASE AND CONCESSION AGREEMENT 

JANUARY 1, 2011  DECEMBER 31, 2013 

ISSUE DATE: MAY 7, 2015 
REPORT NO. 2015-05

FLYING FOOD GROUP, LLC                                        INTERNAL AUDIT 
JANUARY 1, 2011  December 31, 2013 

TABLE OF CONTENTS 


TRANSMITTAL LETTER.................................................................................................................................................. 3 
EXECUTIVE SUMMARY ................................................................................................................................................. 4 
BACKGROUND ............................................................................................................................................................... 5 
FINANCIAL HIGHLIGHTS .............................................................................................................................................. 5 
AUDIT SCOPE AND METHODLOGY .............................................................................................................................. 5 
CONCLUSION ................................................................................................................................................................. 6 
SCHEDULE OF FINDINGS AND RECOMMENDATIONS ............................................................................................... 7 
1.   FLYING FOOD GROUP, LLC, DID NOT SUBMIT THE ANNUAL REPORT BY THE DUE DATE. .................... 7 











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FLYING FOOD GROUP, LLC                                        INTERNAL AUDIT 
JANUARY 1, 2011  December 31, 2013 

TRANSMITTAL LETTER 


Audit Committee 
Port of Seattle 
Seattle, Washington 
We have completed an audit of Flying Food Group, LLC, Lease and Concession Agreement. We reviewed
information for the period January 1, 2011  December 31, 2013.
We conducted this performance 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 management and staff of the Aviation Business Development 
Department and Accounting and Financial Reporting for their assistance and cooperation during the
audit. 


Joyce Kirangi, CPA, CGMA 
Internal Audit, Director 

AUDIT TEAM                      RESPONSIBLE MANAGEMENT TEAM 
Jack Hutchinson, Audit Manager          Jim Schone, Director, Aviation Business Development 
Ruth Riddle, Senior Auditor              James Jennings, Manager, Aviation Properties 
Rudy Caluza, Director, Accounting and Financial Reporting 




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FLYING FOOD GROUP, LLC                                        INTERNAL AUDIT 
JANUARY 1, 2011  December 31, 2013 
EXECUTIVE SUMMARY 

AUDIT OBJECTIVES AND SCOPE 
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 lessee complied with significant provisions of the Lease and Concession Agreement, as
amended. 
We reviewed information for the period January 1, 2011  December 31, 2013. Details of the audit
scope and methodology are on pages 5 and 6. 

BACKGROUND 
Flying Food Group, LLC, (FFG) was founded in Chicago in 1983, at which time it served one airline out
of one kitchen at Midway Airport. Today, FFG produces over 100 million meals annually from its
network of 18 US kitchens, which stretch from Honolulu to New York City. Customers include over 70 of
the world's leading airline customersprimarily internationalplus key retail partners, including over
3,000 US Starbucks. 
The agreement with the Port of Seattle originated in 1988. It spans a term of 30 years. At the end of
the lease term in 2018, there is provision for two, five-year options, at the Port's discretion.  The
agreement requires a monthly concession payment of 7% of gross sales. 

AUDIT RESULT

The reported concession fees were materially complete, properly calculated, and remitted timely to
the Port.  The lessee materially complied with significant provisions of the Lease and Concession
Agreement, as amended, except for failing to meet the required timeline for submission of the annual
report (Finding 1). 



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FLYING FOOD GROUP, LLC                                        INTERNAL AUDIT 
JANUARY 1, 2011  December 31, 2013 

BACKGROUND BACKGROUND 
Flying Food Group, LLC, (FFG) was founded in Chicago in 1983, at which time it served one airline out
of one kitchen at Midway Airport. Today, FFG produces over 100 million meals annually from its
network of 18 US kitchens, which stretch from Honolulu to New York City. Customers include over 70 of
the world's leading airline customersprimarily internationalplus key retail partners, including over
3,000 US Starbucks. 
The agreement with the Port of Seattle originated in 1988. It spans a term of 30 years. At the end of
the lease term in 2018, there is provision for two, five-year options, at the Port's discretion.  The
agreement, as amended, requires a monthly concession payment of 7% of gross sales.1 
Flying Food Group is known for airline passenger meals in a wide variety of cuisines, including
American, Chinese, French, German, Halal, Italian, Indian, Japanese, Korean, Malaysian, Thai, and
Turkish. 
The company produces over 300,000 in-flight meals and snacks daily for airline customersprimarily
internationaland non-airline catering retail partners. 

FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS 
FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTS 
KEY FINANCIAL RESULTS FOR FLYING FOOD GROUP 
AGREEMENT YEAR          REPORTED GROSS SALES        CONCESSION PAID
2
2011                          $ 12,670,003             $ 859,683 
2012                               13,056,391                 913,947
2013                               12,776,481                 894,353 
TOTAL                          $ 38,502,875             $ 2,667,983
Data Source: PeopleSoft Financials 

AUDIT SCOPE AND METHODLOGY AUDIT SCOPE AND METHODOLOGY 
We reviewed information for the period January 1, 2011  December 31, 2013. We utilized a risk-based
audit approach from planning to testing. We gathered information through document review, inquiries
of the lessee, observations, and data analysis, in order to obtain a complete understanding of the
financial requirements of the agreement between the Port of Seattle and FFG. 

1
Subsequent to a prior audit, FFG and the Port negotiated a settlement agreement, which eliminated the 3.5% concession fee 
on sales to airlines outside of Sea-Tac International Airport. Effective January 1, 2012, all sales to airlines (at Sea-Tac or
elsewhere in the vicinity) were subject to the 7% fee. 
2
The sales subject to the 3.5% fee totaled $777,607. The concession fee on these sales totaled $27,216. 

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FLYING FOOD GROUP, LLC                                        INTERNAL AUDIT 
JANUARY 1, 2011  December 31, 2013 

We applied additional detailed audit procedures to areas with the highest likelihood of significant
negative impact as follows: 
1.  To determine whether the  reported gross sales/concession fees were complete, properly
calculated, and remitted timely to the Port. 
Gross Sales/concession fees complete and properly calculated: 
Reviewed the lessee's chart of accounts to determine whether all revenue accounts
were reported. 
Reconciled the following documents/reports provided by lessee: 
Audited amounts from lessee's CPA 
General Ledger 
Sales Tax Reports 
Monthly self-report of gross revenues and calculation of concession fee due. 
Based on risk indicators -- concession fees decreased while enplanements increased -- 
we conducted detailed tests of the following months (selecting at least one billing per
customer): 
June, August 2011 
December 2012 
March 2013 
We determined whether: 
Customer billings agreed to customer orders. 
Amounts billed and discounts granted agreed to the receipts. 
Quantified and tested a sample of discounts recorded to the General Ledger 
Late fees and interest assessed and paid: 
Reviewed all payment records for the audit period to determine whether payments were
received timely. 
Identified late payments, if any, calculated late fees/interest, and determined whether 
billed and paid. 
2. To determine whether the lessee complied with significant provisions of the Lease and Concession
Agreement, as amended, we determined whether lessee: 
Submitted certified reports by required date. 
Maintained required insurance at specified amounts. 
Maintained corporate surety bond (or other security) at specified amount. 

CONCLUSION 
CONCLUSION 
CONCLUSION 
The reported concession fees were materially complete, properly calculated, and remitted timely to
the Port.  The lessee materially complied with significant provisions of the Lease and Concession
Agreement, as amended, except for failing to meet the required timeline for submission of the annual
report (Finding 1). 


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FLYING FOOD GROUP, LLC                                        INTERNAL AUDIT 
JANUARY 1, 2011  December 31, 2013 

SCHEDULE OF FINDINGS AND RECOMMENDATIONS 
1.   FLYING FOOD GROUP, LLC, DID NOT SUBMIT THE ANNUAL REPORT BY THE DUE
DATE. 
Section 7 of the lease and concession agreement states: 
Within a period of sixty (60) days following the end of each calendar year or portion thereof
during the term of this Lease and concession Agreement, Lessee shall deliver to the Port a
statement of the concession fees due under paragraph 5 for the calendar year or portion
thereof. Lessee's statement shall be prepared with reasonable detail and certified by a
Certified Public Accountant engaged by Lessee for this purpose. 
During the period under audit, the lessee did not submit the annual reports within the 60 days
required by the agreement. The annual audit of Flying Food was not completed in time to meet
this due date. 
The annual report was submitted on the following dates: 
SCHEDULE OF FLYING FOOD GROUP'S ANNUAL
REPORT SUBMISSIONS 
YEAR           DUE DATE    DATE OF CPA REPORT
2011                02-28-12             04-30-12 
2012                 02-28-13              06-04-13
2013                02-28-14             04-04-14
The Port uses the CPA's annual reports to adjust the amounts previously reported by the lessee 
in its monthly reports. The 60-day time frame ensures that any amounts due from or due to the
lessee are properly accounted for in the Port's year-end financial statements. Although the
adjustments were not significant, they could not be made until approximately six months after
year-end. 

Recommendations 
We recommend Port management: 
1.  Discuss the annual report due date requirement with the lessee. 
2.  Amend the agreement language, as deemed necessary. 



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FLYING FOOD GROUP, LLC                                        INTERNAL AUDIT 
JANUARY 1, 2011  December 31, 2013 
Management Response 
The Port's Accounting & Financial Reporting (AFR) Department has a specific protocol in place
regarding Certified Annual Reports that are to be provided by tenants. This protocol involves: 
1) AFR sends a letter to the tenant reminding them of the due date for the Certified Annual Report. 
2) If the tenant does not meet that deadline, AFR staff then send a past due notice to the tenant.
In both cases, this communication from AFR is reviewed with the appropriate AV Division Properties
staff prior to sending to the tenant. These letters are kept in AFR's lease file. 
3) Certified Annual Reports that are past due are also included as agenda items in regular monthly
meetings that involve AFR and AV Division Properties staff to ensure that appropriate visibility is
created to remind the tenant of their lease obligation.
In the case of Flying Foods, AFR followed the protocol identified above. And the annual report due
date requirement was discussed with the tenant.
The only enforcement mechanism in the lease is to put the tenant in default. AV Properties staff will
work with POS Legal staff to explore other means to enforce compliance with lease provisions short of
putting a tenant in default. 











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