03 Hertz Audit Report
Internal Audit Report Rental Car Lease and Concession Audit The Hertz Corporation dba/Hertz Rent-A-Car November 1, 2009 - October 31, 2011 Issue Date: June 11, 2013 Report No. 2013-04 Internal Audit Report Hertz Rent-A-Car November 1, 2009 - October 31, 2011 Table of Contents Transmittal Letter ....................................................................................................................... 3 Executive Summary.................................................................................................................... 4 Background ................................................................................................................................. 5 Audit Scope and Methodology .................................................................................................. 5 Conclusion .................................................................................................................................. 7 Schedule of Findings and Recommendations ......................................................................... 8 1. Concession Revenue Was Underreported ................................................................... 8 Schedules Schedule A - Underreported Gross Revenue Items for Fiscal Year Ending October 2010..10 Schedule B - Concession Location Not Reported for Fiscal Year Ending October 2010..11 Schedule C - Concession Location Not Reported for Fiscal Year Ending October 2011..12 Page 2 Internal Audit Report Hertz Rent-A-Car November 1, 2009 - October 31, 2011 Transmittal Letter Audit Committee Port of Seattle Seattle, Washington We have completed an audit of the Hertz Corporation, dba Hertz Rent-A-Car. We reviewed information relating to a two-year period from November 1, 2009, through October 31, 2011. We conducted this performance audit in accordance with generally accepted government auditing standards. 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 Aviation Business Development and Accounting and Financial Reporting for their assistance and cooperation during the audit. Joyce Kirangi, CPA, CGMA Director, Internal Audit Page 3 Internal Audit Report Hertz Rent-A-Car November 1, 2009 - October 31, 2011 Executive Summary Audit Scope and Objective The purpose of the audit was to determine whether: The reported concession fees were complete, properly calculated, and remitted timely to the Port. The Port and the lessee complied with provisions of the Lease and Concession Agreement, as amended. Customer Facility Charges (CFC) were properly collected and remitted timely to the Port. We examined the books and records of Hertz Rent-A-Car (Hertz) for a two-year period from November 1, 2009, through October 31, 2011. Aviation Business Development, in conjunction with Accounting and Financial Reporting, has the primary responsibility for administering and monitoring the agreement to ensure compliance with agreed-upon terms. Agreement Terms The terms of the agreement provide for a Minimum Annual Guarantee (MAG) of 80% of the total amount paid to the Port in the previous agreement year. Additionally, the agreement requires a Percentage Fee equal to 10% of gross revenues, provided the fee is higher than the monthly MAG payment. Audit Result Summary Hertz materially complied with the terms of the Rental Car Lease and Concession agreement. However, the audit determined that certain gross receipts were underreported. We recommend the Port management seek and recover approximately $21,018 in additional concession fees, late fees, and interest charges. See Finding 1 on the Schedule of Findings. Page 4 Internal Audit Report Hertz Rent-A-Car November 1, 2009 - October 31, 2011 Background Hertz is one of two brands offering rental cars, trucks, and equipment within the Hertz Corporation, a subsidiary of Hertz Global Holdings, Inc. The Hertz Corporation maintains a local administrative office and fleet maintenance facility near Seattle-Tacoma International Airport. The terms of the agreement provide for a Minimum Annual Guarantee (MAG) of 80% of the total amount paid to the Port in the previous agreement year. Additionally, the agreement requires a Percentage Fee equal to 10% of gross revenues, provided the Percentage Fee is higher than the monthly MAG payment. The following are the only agreed-upon deductions allowed in the agreement: a. Any tax imposed or collected on behalf of a taxing authority b. Any amounts received as insurance proceeds or for damage to vehicles or other property, or for loss, conversion or abandonment of such vehicles c. The wholesale transfer of salvage vehicles d. All non-revenue rentals to employees e. Fees paid to other governmental agencies (excluding the Port), relating to transactions at the Airport The MAG is payable in advance, on or before the first day of each month, without notice from the Port. The percentage fee, if applicable, is due on or before the 20th of the following month. For untimely payments, the agreement provides for a one-time late fee of 5% of the overdue amount and interest to be accrued at the rate of 18% per year from the due date until paid. Below are the financial highlights for the last two fiscal years: Fiscal Year Reported Gross Revenue Paid Concession 2009 - 2010 55,919,197 5,591,920 2010 - 2011 54,769,892 5,476,889 Grand Total $ 110,689,089 $ 11,068,809 Data Source: Hertz Rent-A-Car Annual Report and PeopleSoft General Ledger Audit Scope and Methodology We conducted the audit to determine whether Hertz complied with the lease agreement terms including, but not limited to, proper concession and CFC payments. We utilized a risk-based audit approach from planning to testing. We gathered information through document requests, interviews, observations, and analytical reviews. We obtained a complete understanding of the financial requirements of the Agreement between the Port of Seattle and Hertz. We applied Page 5 Internal Audit Report Hertz Rent-A-Car November 1, 2009 - October 31, 2011 additional detailed audit procedures to areas with the highest likelihood of significant negative impact as follows: a. Timely Payment e. CPA Certified Annual Report b. Insurance Liability f. Concession Revenue c. Surety Bond/Security Deposit g. Customer Facility Charge (CFC) d. Minimum Annual Guarantee (MAG) a) Timely Payment We reviewed payment records to determine whether the lessee complied with the required due date. b) Insurance Liability We reconciled insurance requirements to the coverage reflected in the certificate of insurance in force for the audit period to current. c) Surety Bond/Security Deposit We determined whether the surety bond amount complied with the requirements stipulated in the agreement. d) Minimum Annual Guarantee We determined whether MAG was properly calculated. e) CPA Certified Annual Report We reviewed audit reports for the audit period to determine compliance with the timely and complete submission of the report. f) Concession Revenue We interviewed Hertz personnel about their policies, procedures, and internal controls over cash receipts, sales, accounting, and reporting. The Business Daily Report (BDR), which is the general ledger, shows the monthly detail per revenue category. The Revenue Report shows the monthly totals summarized by revenue category. We reconciled the BDR to the CPA report, and to the Revenue Report. To determine whether the lessee completely reported all concession revenues, we selected a sample of 145 closed rental agreements deemed high-risk for the audit period. We determined whether the revenue reported on each rental agreement agreed to the amount posted to the BDR, and ensured that commercial discounts did not reduce concession revenue. Page 6 Internal Audit Report Hertz Rent-A-Car November 1, 2009 - October 31, 2011 g) Customer Facility Charges We reconciled the CFC amount reported in the BDR to each rental agreement in the risk-based sample of closed rental transactions. We determined whether the CFC was properly calculated, timely collected, and remitted in full to the Port, as required in the agreement. Conclusion Hertz materially complied with the terms of the Rental Car Lease and Concession agreement. However, the audit determined that certain gross receipts were underreported. We recommend the Port management seek and recover approximately $21,018 in additional concession fees, late fees, and interest charges. See Finding 1 on the Schedule of Findings. Page 7 Internal Audit Report Hertz Rent-A-Car November 1, 2009 - October 31, 2011 Schedule of Findings and Recommendations 1. CONCESSION REVENUE WAS UNDERREPORTED i. One Concession Location Was Not Reported The lease agreement Section 1.5 stipulates: "Airport Customer" shall mean: "(i) any person who comes to the Airport by any means of transportation and enters into a motor vehicle rental agreement with concessionaire at Concessionaire's Rental Car Concession; (ii) any person who flies into the Airport and within twelve (12) hours thereafter, enters into a motor vehicle rental agreement with concessionaire at any of Concessionaire's rental car operations located within three (3) mile radius of the Airport boundary line." Hertz operates at the following five locations within the three mile radius: Seattle-Tacoma International Airport SeaTac Marriot Signature Flight Burien Chevrolet Pacific Hwy South We determined that concession receipts at the Burien Chevrolet location were not included in the concession reported to the Port for the audit period. This resulted in underreported concession of approximately $7,720 as follows: (See Schedules B, and C for detail.) Total Understatement to the Port Fiscal Year 2010 $ 26,769 Fiscal Year 2011 27,980 Total Underreported Gross $ 54,749 Concession Fee Underpaid (10%) 5,475 One Time Late Fee (5%) 271 Interest Accrued (18%) 1,974 Total Amount Due to the Port $ 7,720 ii. Certain Concession Items Were Not Included The agreement, as amended, under Section 1.26 defines concession to include revenues from "all consideration of any kind - whether cash, credit or in kind- received, derived and/or billed by the Concessionaire for: (a) all charges, including, but not limited to, time and mileage charges" Our analysis and review of the lessee's financial records and detail transaction testing determined that gross revenues from the following concession items were not reported to the Port: Page 8 Internal Audit Report Hertz Rent-A-Car November 1, 2009 - October 31, 2011 Customer Curbside Return Fees Gold Membership Fees Premium Roadside Produce Hertz has acknowledged the amounts cited in the table below, which summarizes underreported gross revenue: (See Schedules A for detail.) Total Understatement to the Port Fiscal Year 2010 $ 93,070 Concession Fee Underpaid (10%) 9,307 One Time Late Fee (5%) 394 Interest Accrued (18%) 3,597 Total Amount Due to the Port $ 13,298 Recommendations: We recommend management: i. Review concession revenues from the Burien Chevrolet location for years prior to the audit period and seek recoveries, as appropriate. ii. Work with Hertz Corporation to ensure that all concession items from all locations within the three-mile radius are properly and completely reported to the Port. iii. Seek and recover approximately $21,018 ($7,720 + $13,298) in underpaid concession fees, late fees, and accrued interest. Management Response For recommendation i and ii: The tenant is aware that they must report concession revenue for all locations within a three mile radius of the Airport. The Burien Chevrolet location opened 10/8/09, and according to Hertz that location had no revenue prior to February 2010. Since this audit covered the period November 1, 2009 through October 31, 2011, Management does not think it is worthwhile to audit this location for prior years. Please note: the location was temporarily closed as of 10/19/12 and is expected to resume business 8/31/13. For recommendation iii: The tenant agrees with the findings and therefore, we will bill them accordingly. Page 9 HERTZ RENT A CAR SCHEDULE A - GROSS REVENUE UNDERREPORTING FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2010 INTEREST CALCULATED AS OF 03/31/13 DATE 11/09 12/09 01/10 02/10 03/10 04/10 05/10 06/10 07/10 08/10 09/10 10/10 Grand Total Herts CPA year-end true up Gross Revenue (a) 3,321,284 3,405,465 3,258,558 3,716,664 4,106,508 4,052,232 4,090,845 4,979,539 6,671,396 7,821,882 5,812,146 4,682,678 55,919,197 FINDINGS: ADD Main Terminal CURBSIDE - 3124 30 35 65.00 RES FEE - 3133 (45) (45.00) PREM RD SC - 3756 1,271 3,238 3,474 6,367 4,421 4,459 5,411 7,021 9,742 17,734 14,660 15,253 93,050.21 Total Additions (b) 1,271 3,193 3,474 6,367 4,421 4,459 5,411 7,051 9,777 17,734 14,660 15,253 93,070 Adjusted Gross Revenue (a) + (b) 3,322,555 3,408,658 3,262,032 3,723,031 4,110,929 4,056,691 4,096,256 4,986,590 6,681,173 7,839,616 5,826,806 4,697,931 56,012,267 Concession Fee Payable - 10% 332,255 340,866 326,203 372,303 411,093 405,669 409,626 498,659 668,117 783,962 582,681 469,793 5,601,227 Concession Fee Reported by Hertz (MAG & %) 398,208 398,208 398,208 398,208 410,651 405,223 409,085 497,954 667,140 782,188 581,215 468,268 5,814,556 Add'l Concession Payable - - - - 442 446 541 705 978 1,773 1,466 1,525 7,876 # of Months to Current 39 38 37 36 35 34 33 32 31 30 29 28 One Time Late Fee @ 5% 394 Interest Rate Annually 18% or 1.5% Per Month 232.13 227.40 267.79 338.40 454.61 798.04 637.70 640.63 3,597 Total Add'l Concession Payable and Interest Payable to the Port 674.27 673.29 808.79 1,043.39 1,432.25 2,571.47 2,103.68 2,165.93 11,867 Concession Fee Analysis Concession Fee Paid 5,814,556 Credit Issued For Year End True Up on 1/27/2011, LEASS-40125 (222,636) Total Concession Fees Paid 5,591,920 Concession Fee Per Audit 5,601,227 Concession Fee Due To The Port 9,307 Plus Late Fee % 394 Interest Accrued 3,597 Amount Due To The Port in 2010 - Schedule A 13,298 Schedule A Page 10 HERTZ RENT A CAR SCHEDULE B - GROSS REVENUE UNDERREPORTING FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2010 INTEREST CALCULATED AS OF 03/31/13 DATE 11/09 12/09 01/10 02/10 03/10 04/10 05/10 06/10 07/10 08/10 09/10 10/10 Grand Total Herts CPA year-end true up Gross Revenue (a) 3,321,284 3,405,465 3,258,558 3,716,664 4,106,508 4,052,232 4,090,845 4,979,539 6,671,396 7,821,882 5,812,146 4,682,678 55,919,197 FINDINGS: ADD Burien Chevrolet 7340-17 REVENUE - 3101 342 373 900 1,000 1,831 6,373 8,162 1,878 1,041 21,899 LOCAL REVENUE - 3100 254 97 990 769 2,110 LDW - 3140 125 140 440 264 969 LIS - 2169 12 479 35 526 PAI - 2145 6 119 125 AGE DIF - 3103 (12) 60 48 REFUEL - 3721 63 145 381 20 111 720 FPO - 3721 37 26 49 48 74 234 ENERGY FEE - 3755 1 1 1 4 29 32 7 3 78 PREM RD SC - 3756 59.80 60 Total Additions (b) 406 628 900 1,260 1,862 7,732 10,549 2,278 1,155 26,769 Adjusted Gross Revenue (a) + (b) 3,321,284 3,405,465 3,258,558 3,717,070 4,107,136 4,053,132 4,092,105 4,981,401 6,679,128 7,832,431 5,814,424 4,683,833 55,945,966 Concession Fee Payable - 10% (c) 332,128 340,547 325,856 371,707 410,714 405,313 409,211 498,140 667,913 783,243 581,442 468,383 5,594,597 Concession Fee Reported by Hertz (MAG & %) 398,208 398,208 398,208 398,208 410,651 405,223 409,085 497,954 667,140 782,188 581,215 468,268 5,814,556 Add'l Concession Payable - - - - 63 90 126 186 773 1,055 228 116 2,636 # of Months to Current 39 38 37 36 35 34 33 32 31 30 29 28 One Time Late Fee @ 5% 131 Interest Rate Annually 18% or 1.5% Per Month 33 46 62 89 359 475 99 49 1,212 Total Add'l Concession Payable and Interest Payable to the Port 96 136 188 275 1,133 1,530 327 164 3,980 Concession Fee Analysis Concession Fee Paid 5,814,556 Credit Issued For Year End True Up on 1/27/2011, LEASS-40125 (222,636) Total Concession Fees Paid 5,591,920 Concession Fee Per Audit 5,594,597 Concession Due To The Port - Schedule B 2,677 Concession Due To The Port - Schedule C * 2,798 Concession Due To The Port 5,475 Plus One Time Late Fee 5 % - Schedule B 131 One Time Late Fee 5 % - Schedule C * 140 Total One Time Late Fee 271 Interest Accrured - Schedule B 1,212 Interest Accrured - Schedule C * 762 Total Interest Accrued 1,974 Total Add'l Concession Payable and Interest Payable to the Port 7,720 Schedule B Page 11 HERTZ RENT A CAR SCHEDULE C - GROSS REVENUE UNDERREPORTING FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2011 INTEREST CALCULATED AS OF 03/31/13 DATE 11/10 12/10 01/11 02/11 03/11 04/11 05/11 06/11 07/11 08/11 09/11 10/11 Grand Total Herts CPA year-end true up Gross Revenue (a) 3,648,647 3,323,784 3,087,676 3,060,286 3,865,036 3,639,991 4,033,857 5,117,874 6,590,768 8,103,995 6,096,709 4,200,269 54,768,892 FINDINGS: ADD Burien Chevrolet 7340-17 REVENUE - 3101 28.65 32.39 177.29 7,212.58 12,707.31 1,739.95 993.19 22,891.36 LOCAL REVENUE - 3100 (13.37) 1,245.24 47.98 1,279.85 LDW - 3140 13.37 845.18 169.92 307.86 471.78 1,808.11 LIS - 2169 89.50 116.90 206.40 PAI - 2145 59.50 59.50 AGE DIF - 3103 - AAO - 3104 39.00 (17.60) 21.40 SVC CHG - 3130 70.00 80.00 10.00 160.00 NEVERLOST - 3137 34.95 34.95 REFUEL - 3721 5.94 166.66 20.32 71.95 264.87 FPO - 3721 548.14 566.05 46.98 1,161.17 ENERGY FEE - 3755 1.03 1.03 33.99 45.32 6.18 5.15 92.70 Total Additions (b) 35 - - - 33 - - 178 10,310 13,606 2,300 1,518 27,980 Adjusted Gross Revenue (a) + (b) 3,648,682 3,323,784 3,087,676 3,060,286 3,865,069 3,639,991 4,033,857 5,118,052 6,601,078 8,117,601 6,099,009 4,201,787 54,796,872 Concession Fee Payable - 10% 364,868 332,378 308,768 306,029 386,507 363,999 403,386 511,805 660,108 811,760 609,901 420,179 5,479,687 Concession Fee Reported by Hertz (MAG & %) 398,208 398,208 398,208 398,208 398,208 398,208 403,386 511,787 659,077 810,400 609,671 420,027 5,803,597 Add'l Concession Payable - - - - - - - 18 1,031 1,361 230 152 2,791 # of Months to Current 27 26 25 24 23 22 21 20 19 18 17 16 One Time Late Fee @ 5% 140 Interest Rate Annually 18% or 1.5% Per Month 5 294 367 59 36 762 Total Add'l Concession Payable and Interest Payable to the Port - - - - - - - 23 1,325 1,728 289 188 3,692 Concession Fee Analysis Concession Fee Paid 5,803,597 Credit Issued For Year End True Up (326,708) Total Concession Fees Paid 5,476,889 Concession Fee Per Audit 5,479,687 Add'l Concession Fee Payable To The Port * 2,798 Plus Late Fee 5% * 140 Interest Accrued * 762 Total Add'l Concession Payable and Interest Payable To The Port 3,700 Schedule C Page 12
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