02 GateGourmet
INTERNAL AUDIT REPORT GATE GOURMET, INC. LEASE AND CONCESSION AGREEMENT JANUARY 1, 2011 DECEMBER 31, 2013 ISSUE DATE: FEFBRUARY 10, 2015 REPORT NO. 2015-02 GATE GOURMET, INC. 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 METHODOLOGY............................................................................................................................ 5 CONCLUSION ................................................................................................................................................................ 6 2 GATE GOURMET, INC. INTERNAL AUDIT JANUARY 1, 2011 DECEMBER 31, 2013 TRANSMITTAL LETTER Audit Committee Port of Seattle Seattle, Washington We have completed an audit of Gate Gourmet, Inc. 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 the Accounting and Financing Reporting Department for their assistance and cooperation during the audit. Joyce Kirangi, CPA, CGMA Internal Audit, Director AUDIT TEAM RESPONSIBLE MANAGEMENT TEAM Margaret Songtantaruk, Senior Auditor Jim Schone, Director, Aviation Business Development Jack Hutchinson, Audit Manager James Jennings, Manager, Aviation Properties Group Formatted Table Rudy Caluza, Director, Accounting and Financial Reporting 3 GATE GOURMET, INC. 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 Port and 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 our audit's scope and methodology are on page 5. BACKGROUND Gate Gourmet, Inc. (GG) 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 on the gross sales for catering services to airlines, and a 3.5% concession fee on the gross sales to non-airline customers. The gross sales include sales by any licensee or other party authorized to make sales in connection with the business operated by GG. AUDIT RESULT The reported concession fees were materially complete, properly calculated, and remitted timely to the Port. The lessee materially complied with the terms of the Lease and Concession Agreement, as amended. 4 GATE GOURMET, INC. INTERNAL AUDIT JANUARY 1, 2011 DECEMBER 31, 2013 BACKGROUND BACKGROUND Gate Gourmet (GG) is the world's largest independent provider of airline catering and provisioning services. It delivers daily, on a global basis, to more than 250 airline customers, and currently has more than 100 in-flight kitchens 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 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 FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS KEY FINANCIAL RESULTS FOR GATE GOURMET, INC AGREEMENT REPORTED GROSS CONCESSION PAID YEAR REVENUES 2011 $ 13,246,935 $927,285 2012 17,430,858 1,220,160 2013 18,317,517 1,282,226 TOTAL $ 48,995,310 $ 3,429,671 Data Source: PROPworks and PeopleSoft Financials 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 reviews, inquiries, observations, and data analyses, in order to obtain a complete understanding of the financial requirements of the agreement between the Port of Seattle and Gate Gourmet, Inc. We applied additional detailed audit procedures to areas with the highest likelihood of significant negative impact as follows: 1. To determine whether the reported concession fees were complete, properly calculated, and remitted timely to the Port. Reviewed the lessee's chart of accounts to ensure all revenue accounts were included in the reported revenues to the Port. 5 GATE GOURMET, INC. INTERNAL AUDIT JANUARY 1, 2011 DECEMBER 31, 2013 Reconciled the reported revenues to: o SAP general ledger by account, type and customer. Additionally, the revenues by customer were reviewed to determine whether all customers subject to the concession were included in the reported revenue. o Certified Audited Statement of Gross Revenues independently verified by a CPA. Tested a risk-based sample of 46 transactions to determine whether: o All accrued transactions were legitimate, valid and properly reversed. o All credit invoices, such as returns and refunds, were legitimate and for valid purposes. o All volume discounts, a disallowed deduction, did not reduce gross sales. Reviewed all payment records for the audit period for compliance with the required due date. 2. To determine whether the Port and Lessee complied with provisions of the Lease and Concession Agreement, as amended. We reviewed the following: The Certified Audited Statement of Gross Revenues for compliance with the timely and complete submission requirements. Insurance coverage in force for the audit period. Security deposit and/or surety bond maintained at specified amount. CONCLUSION The reported concession fees were materially complete, properly calculated, and remitted timely to the Port. The lessee materially complied with the terms of the Lease and Concession Agreement. AUDIT SCOPE AND METHODOLOGY 6
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