Fox Rent-A-CAR

Internal Audit Report

Fox Rent-A-Car

Lease and Concession Compliance Audit

January 1, 2008 through December 31, 2009




Issue Date: February 1, 2011
Report No. 2011-01

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285
Audit Period: January 1, 2008  December 31, 2009 
Table of Contents
Internal Auditor's Report .................................................................................................. 3 
Executive Summary .......................................................................................................... 4 
Audit Approach ................................................................................................................. 5 
Conclusion ......................................................................................................................... 6 
Schedule of Findings and Recommendations ................................................................ 7 
1.   Underreported and Reduction of Gross Receipts 
2.   Underpaid Customer Facility Charge (CFC) 
3.   Untimely Payments 
Schedule A - 2008 Underreporting of Gross Revenue ....................................................... 11 
Schedule B - 2009 Underreporting of Gross Revenue ....................................................... 12 
Schedule C  Underreporting of Customer Facility Charge (CFC) ..................................... 13 










2

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285Agreement No. 940 and 1285 
Audit Period: January 1, 2008  December 31, 2009Audit Period: January 1, 2008 December 31, 2009 
Internal Auditor's Report

We have completed an audit of the Lease and Concession Agreement, as, as amended, between
the Port of Seattle and Fox RentFox Rent-A-Car.
The purpose of the audit was to determine whether:The purpose of the audit was to determine whether: 
1) Reported concession was complete, properly calculatedReported concession was complete, properly calculated, and remittedremitted timely to the Port.
2) Port and the lessee complied with provisions of the Lease and Concession Agreement.lessee complied with provisions of the Lease and Concession Agreement. lessee complied with provisions of the Lease and Concession Agreement.
3) Lease and Concession Agreement, as amended, complies with applicable state and PortLease and Concession Agreement                with applicable state and Port
requirements.
4) Customer Facility Charges (CFC) were pustomer Facility Charges (CFC) were properly collected and remittedremitted timely to the Port.

We examined information related to a two-year period from January 1, 200We examined information related to a   year period from January 1, 2008, through December
31, 2009. 
We conducted our auditit using due professional care. WWee planned and performed the audit to
obtain reasonable assurance as to compliance with significant provisions of the agreementagreement,
including complete and timely reporting of concessionable revenues.including complete and timely reporting of concessionable revenues
Fox Rent-A-Car materially complied with the terms of the Lease and ConceConcession agreement.
The agreement itself also compliesThe agreement itself also complies withwith applicableapplicable state and Port requirements. As reported instate and Port requirements.
the subsequent pages of this report, the audit disclosed instances of late payments,
underreported gross receipts,, and underreported Customer Facility Charge (CFC)Customer Facility Charge (CFC).
We extend our appreciation to the management and staff of Aviation Business Development,Development
and Accounting & Financial Reporting for their assistance and cooperationand Accounting & Financial Reporting for their assistance and cooperation during the audit.


Joyce Kirangi, CPA
Director, Internal Audit




3

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285
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.
4.  Customer Facility Charges (CFC) were properly collected and remitted timely to the Port.
We examined the books and records of Fox Rent-A-Car for a two-year period from January 1,
2008 through December 31, 2009. Aviation Business Development, in conjunction with
Accounting and Financial Reporting (AFR), has the primary responsibility for administering and
monitoring the agreement to ensure compliance with agreed-upon terms.
Agreement Terms The agreement requires Fox Rent-A-Car to pay the Port a monthly
percentage fee of 4% of its Gross Revenue that is greater than $40,000. The allowed $40,000
monthly deduction is adjusted annually to reflect changes in the Consumer Price Index (CPI).
The following agreed-upon deductions are allowed in the RAC lease agreement:
a. Any amounts received as insurance proceeds or for damage to vehicles or other
property, or for loss, conversion or abandonment of such vehicles.
b. The wholesale transfer of salvage vehicles.
c. Non-revenue rentals to employees.
d. Fees paid to other governmental agencies (excluding the Port).
e. Any tax imposed or collected on behalf of taxing authority.
The privilege fee is payable to the Port no later than 30 days after the end of each month.
For untimely payments, the agreement provides a one-time late fee of 5% of the overdue
amount and interest to be accrued at the rate of 18% per annum from the due date until paid.

Audit Result Summary Fox Rent-A-Car materially complied with the terms of the Lease and
Concession agreement. The audit; however, disclosed Fox Rent-A-Car underreported gross
revenues and Customer Facility Charges (CFC) to the Port. Additionally, we noted instances of
late payments ranging from 2 to 37 days where no late fee charges had been assessed.
These exceptions resulted in underreporting to the Port, and the auditor recommends Port
management seek and recover approximately $129,291 in additional concession fees, CFC,
and late fee charges.

4

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285
Audit Period: January 1, 2008  December 31, 2009 

Background
Fox Rent-A-Car is a franchise car rental. The agreement between the Port of Seattle and Fox
Rent-A-Car became effective in August 2007. The agreement is operated on a month-to-month
basis. The Fox Rent-A-Car is a California corporation, with many independent car rentals in the
United States, Canada and around the world.
Fox Rent-A-Car agreement does not require a monthly MAG payment to the Port. It requires the
rental car agency to pay the Port a monthly concession percentage fee of 4% of its Gross
Revenue in excess of $40,000.The allowed $40,000 monthly deduction is adjusted annually to
reflect changes in the Consumer Price Index (CPI).
The concession fee is payable to the Port no later than 30 days after the end of each month.
For untimely payments, the agreement provides a one-time late fee of 5% of the overdue
amount and interest to be accrued at the rate of 18% per annum from the due date until paid.

Below is Fox Rent-A-Car financial highlights for the last two years:
Reported    Less Allowable     Net        Paid
Year    Gross Revenue    Deduction   Concessionable   Concession
2008        6,603,567     (480,000)     6,423,567      217,979 
2009        5,976,073     (485,420)     5,490,653      234,926 
Total         12,579,640      (965,420)     11,614,220       452,905 
Source: PROPWorks and PeopleSoft

The scope of the audit covered the period of January 1, 2008 through December 31, 2009.

Audit Approach
To achieve our audit objective, 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 associate with the RAC 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 RAC agency accounting records
to ensure completeness and consistency.
5

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285
Audit Period: January 1, 2008  December 31, 2009 
o Verified that concession fees were paid timely to the Port.
o Recalculated concession revenue and related fees to ensure accuracy.
o Selected the test months that deemed high risks for further details tests.

Conclusion
Fox Rent-A-Car materially complied with the terms of the Lease and Concession agreement.
The audit; however, disclosed Fox Rent-A-Car underreported gross revenues and Customer
Facility Charges to the Port. Additionally, we noted instances of late payments ranging from 2 to
37 days where no late fee charges were assessed.
The noted exceptions in total resulted in underreporting to the Port, and the auditor
recommends Port management seek and recover approximately $129,291 in additional
concession fees, CFC, and late fee charges.













6

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285
Audit Period: January 1, 2008  December 31, 2009 
Schedule of Findings and Recommendations
1. Underreported and Reduction of Gross Receipts
Gross revenue is defined under Section 1.E as:
" all charges, including, but not limited to, time and mileage charges and
separately stated fees for rental of vehicles and other related or incidental
services or merchandise, and any other items or services, made at or from
Concessionaire's Rental Car Concession, regardless of where the vehicles or
services are delivered to or returned; personal accident insurance; any vehicle
originally rented at Concessionaire's Rental Car Concession which exchanged at
any other location; the long-term lease; all amount charged to concessionaire's
customers and which are separately stated on the rental agreement as an
optional charge for waiver; personal property (including, but not limited to, mobile
phones, child seats, ski racks, etc; furnishing and/or replacing fuel; all monies,
fees, or other consideration received from airlines, travel agents or other; intercity
or drop charges; and recovery fee"
All gross revenues from operations are subject to concession, except for the following
agreed-upon exclusions:
a. Any amounts received as insurance proceeds or for damage to vehicles or other
property, or for loss, conversion or abandonment of such vehicles.
b. The wholesale transfer of salvage vehicles.
c. Non-revenue rentals to employees.
d. Fees paid to other governmental agencies (excluding the Port).
e. Any tax imposed or collected on behalf of taxing authority.
We reviewed Fox Rent-A-Car financial records including monthly sales summary, and noted
the following gross revenues were underreported to the Port:

Time & mileage                    Miscellaneous
Recovery Fee                     Fuel
Drop charges                     Age different
Child seat                        Class upgrade
Additional Driver                   Insurance
Navigation                       Road side assistant
Towing

In addition, we noted customer discount/rebate was an offset against gross revenues
reported to the Port. The un-allowed discount/rebate offset against reported gross revenue
amounted to approximately $6,631 in 2008 and $25,518 in 2009.

7

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285
Audit Period: January 1, 2008  December 31, 2009 
The table below summarizes underreported and offset gross revenues.

Description               2008     2009     Total
Fox Reported Gross Revenue   6,306,567  5,976,073  12,282,640 
Plus Underreported          162,714    58,720    221,434 
Plus Discount/Rebate           6,631    25,518     32,149 
Less Allowance           (480,000)  (485,420)   (965,420) 
Concessionable Revenue
Net of Allowance           5,995,912  5,574,891  11,570,803 
Percentage Fees Payable @4%   239,836   222,996    462,832 
Less Concession Fee Paid     (233,063)  (219,843)   (452,906) 
Underpaid                6,773    3,153     9,926 
Interest (18%/yr)               1,778      737      2,598 
Grand Total Owed           8,551    3,890    12,441 

Recommendation 
We recommend that management:
Seek and recover approximately $12,441 in underpaid concession fees and late fee
interest charges
Work with the Fox Rent-A-Car to ensure that all receipts subject to concession fee
are accurate and completely reported.

Management Response
Aviation Business Development agrees with Internal Audit's finding and will forward an
invoice to Fox for $12,441 to collect the underreported gross receipts and associated
interest. Management will also notify Fox by letter that the deductions are not allowed per
the lease, and as such, this practice should be immediately discontinued.

2. Underpaid Customer Facility Charge (CFC)
Section 5.25.A of the agreement states, in part, that the company "must collect the CFC at
the time the first payment is made under a Rental Car Contract, and must remit the full
amount of the CFC to the Port regardless of whether or not the full amount of such CFC is
actually collected by the Concessionaire" 
8

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285
Audit Period: January 1, 2008  December 31, 2009 
Further, the Port notification letter sent out to Fox Rent-A-Car on July 03, 2008, gave the
rental car company a 45-day notice to start collecting the CFC charges effective on August
18, 2008.
We reviewed the monthly transaction totals against the CFC payment history and noted that
from August 2008 through December 2009, Fox Rent-A-Car inconsistently collected the
CFC charges, and or did not properly remit all CFC owed the Port. The total CFC
underreported to the Port was $58,756. We further applied 18% on the underreported CFC
payments, and this totaled to $21,615 of late fee financial charges. A grand total of $80,371
of additional CFC and late fee charges is now owed the Port.

Recommendation 
We recommend Port management:
Seek recovery of approximately $80,371 of underpaid CFC and late fee interest
charges.

Management Response
Aviation Business Development agrees with Internal Audit's finding and will forward an
invoice to Fox for $80,371 to collect underpaid CFC and associated interest. Management
will also remind Fox by letter that of the lease requirements pertaining to the collection and
remittance of the CFC.

3. Untimely Payments
The agreement, as amended under Section 4.a, stipulates specific payment terms for
percentage fee payments as follows:

Percentage fee is due no later than thirty (30) days after the end of each month.
Late payments, as stipulated under Section 8 of the agreement, are to be assessed a onetime
late fee of 5% on the overdue amount, and interest of 18% per annum or the maximum
allowed by the law, whichever is less.
We reviewed payment history, and noted six and four instances of late payments in 2008
and 2009, respectively, where no late fee financial charges had been applied.


9

Internal Audit 
Fox Rent-A-Car
Agreement No. 940 and 1285
Audit Period: January 1, 2008  December 31, 2009 
The table below summarizes untimely payments and related late fee and interest
charges

# of Instances  One-Time   Interest
Type of    Range of     of Late     Charge   Charge
Year   Payment   Days Late   Payments    @ 5%   (18%/yr)   Total
Concession               6         6,007     918    6,925 
2008           3 to 37
CFC              4      12,430   4,099   16,529 
Concession               4         1,859     669    2,528 
2009           2 to 32
CFC              4       7,810   2,687   10,497 
28,106     8,373   36,479 

Recommendation 
We recommend that Port management:
Seek and recovery approximately $36,479 in one-time late charge and in
interest/finance charges.
Work with the Fox Rent-A-Car to ensure timely payments.

Management Response
Aviation Business Development (AVBD) and Accounting & Financial Reporting (AFR) staff
appreciate the insight provided by Internal Audit regarding late fees. The audit documented
instances when the tenant submitted payments and/or reporting past the due date. The
lease agreement stipulates a 5% penalty and interest accrued at 18% per annum until
concession payment and penalty is made. Different from lease/rental payments which
facilitate predetermined amounts to bill regularly, the amount to bill on concession
agreements is variable and the exact amount above the Minimum Annual Guarantee (MAG)
is not known until the concessionaires submit final reports and AFR completes year end
reconciliations.  The Port's central financial system does not provide an automated
mechanism to support after-the-fact variable computation and billing of late fees. In 2009,
the Port implemented a manual solution using a desktop application to compute and bill late
fees in AFR. With this solution in place, all tenants were notified in 2009 that moving
forward they could expect to be billed penalty and/or interest accrued. All tenants are now
being billed for any applicable late fees according to the terms of their lease. As for the
retroactive considerations, management will work toward resolution with guidance from the
Port Legal department.


10

Total  6,306,567       231  5,542  14  145  226  260  15  90  (141)  145,827 -  1,037  12  622  69  14,109  10   189  1,089  169,345   6,475,912  (480,000)   5,995,912     239,836  233,063  6,774          1,778     8,552                                                                            Dec-08  417,089       (235)  320              150            10 -  189  600  1,034   418,124  (40,000)   378,124     15,125  15,084  41     12     7     49                                                                            Nov-08  307,207         290            (8)  75                 400  757   307,964  (40,000)   267,964     10,719  10,688  30     13     6     36                                                                            Oct-08  383,645         2,885  14  145  189  260  15  90  (63)  250   700  12  622  69         89  5,276   388,921  (40,000)   348,921     13,957  13,746  211     14     44     255
Sep-08  709,124        173           (70)  3,436                 3,539   712,663  (40,000)   672,663     26,907  26,765  142     15     32     173
Aug-08 1,227,145                   45,590         5,244       50,833   1,277,979 (40,000)   1,237,979    49,519 47,486 2,033    16    488    2,521
Jul-08  1,040,433                      37,933          4,177         42,110   1,082,543  (40,000)   1,042,543     41,702  40,017  1,684
17    430    2,114         18               11                      22,079 21,269 810         219    1,028                                                                571,737                   19,809   338      93       20,240   591,977 (40,000)   551,977                                            Jun-08                                                        19       17,423 16,757 666         190    856                                                                458,934      516             15,193         937       16,646   475,580 (40,000)   435,580                                            May-08                                                        20       11,352 10,866 486         146    632                                            11,246         948                            311,658      (50)                              12,144   323,802 (40,000)   283,802                                            Apr-08                                                        21       12,247 11,734 513         162    674                                            12,079         703                            333,352            37                        12,820   346,172 (40,000)   306,172                                            Mar-08                                                        22       10,045 10,048 (3)                                                  291,208                   (87)                (87)   291,121 (40,000)   251,121                                            Feb-08                                                        23       8,763 8,601 161         56    217                                                                255,035       1,874            151         2,008       4,032   259,067 (40,000)   219,067                                            Jan-08                                                        # of Months to Current       Concession Fee Payable - 4% Concession Fee Reported by Fox Add'l Concession Payable             Interest Payable                                                                 Dates                                                           Interest Rate Annually 18%  or 1.5% Per Month   Total Add'l Concession  Payable and                                                                          FOX RENT A CAR SCHEDULE A - 2009 GROSS REVENUE UNDERREPORTING FOR THE TWELVE MONTHS ENDED DECEMBER 2008 INTEREST CALCULATED AS OF 11/30/10      Fox Reported Gross Revenue    FINDINGS: ADD Time & Mileage Customer Rebate Child Seat Navigation Fuel Age Different Add'l Driver GARS Late charge Recovery Fee Towing Insurance Class Upgrade Road Assistant (transporation) VLF Miscellaneous (P Type) Airport transfer fee (TRANS) LMV17 TAI & TRAI Discount Total Additions   Adjusted Gross Revenue Less Allowance Concessionable Revenue net of allowance

Total  5,976,073       25,750  24,032  77  135  745  480  65                                                                     3,890                                                                   24,679                                                              737                                                           (963)  742  922  416  381  42  138   (75)  1,309 -  511  786 -            6,060,311  (485,420)   5,574,891     222,996  219,843  3,153                        1,696  335  549  1,485  84,238                                                       Dec-09  287,633       845  2,411     98                                                                        379                                                                   4,700                                                         12     58                                                           (22)                                   296,214  (40,542)   255,672     10,227  9,905  322                     549   8,581                                                       Nov-09  259,060       2,390  800   102                                                                          474                                                                   7,243                                                         13     77                                                           (60)          (9) -                       269,526  (40,542)   228,984     9,159  8,762  397                 10,466                                                       Oct-09  401,715       1,991            12,528                                                    621     14     131     752                                                               (303)                   170                417,794  (40,542)   377,252     15,090  14,469                       610     1,083  16,079                                                       Sep-09  629,113       7,020  5,225  77  133  640  260  125  133                                                    622     15     140     762                                                               (20)  314  900  818  353  9  100                        645,199  (40,542)   604,657     24,186  23,565                16,086                                                       Aug-09  1,110,232       1,507  6,586          75 -  225  16  22                               1,118,664  (40,542)   1,078,122     43,125  42,809  316     16     76     391                                8,432              38,291  38,141  150     17     38     188         12
Jul-09  993,521       1,316  3,655     6         (295)  31   (428)                             997,806  (40,542)   957,264         4,285                                                       Jun-09  583,443       4,227         220  (60)     (104)  264   26  28  33  47         297     1,061  335   248  6,621   590,064  (40,542)   549,522     21,981  21,738  243     18     66     309
May-09 382,694      3,587 (476)            (300) (11)               23          2,823   385,517 (40,542)   344,975    13,799 13,708 91    19    26    117
746 505   (100)         (82)             931             2,000   318,819 (40,542)   278,277    11,131 11,073 58    20    17    76                                                                           Apr-09 316,819      1,065 3,996             114            9            25 5,209   320,615 (40,542)   280,073    11,203 11,016 187    21    59    245                                                                           Mar-09 315,406      1,260                               536   25      1,821   320,204 (40,000)   280,204    11,208 11,135 73    22    24    97                                                                           Feb-09 318,382                               (75) 369   21 250       130 1,835   379,889 (40,000)   339,889    13,596 13,522 73    23    25                                                               (205)                                                                   99                                                                  1,330             15                              SCHEDULE B - 2009 GROSS REVENUE UNDERREPORTING FOR THE TWELVE MONTHS ENDED DECEMBER 2009 INTEREST CALCULATED AS OF 11/30/10    Jan-09 378,054 Dates Fox Reported Gross Revenue          FOX RENT A CAR               FINDINGS: ADD Time & Mileage Customer Rebate Child Seat Navigation Fuel Age Different Add'l Driver Drop Charge GARS Late charge Recovery Fee Towing Insurance Class Upgrade Road Assistant (transporation) VLF Miscellaneous Claim ASV17 LMV17 TAI & TRAI UAF17 AHC17 FSS17 WRS17 WPD17 Discount Total Additions   Adjusted Gross Revenue Less Allowance Concessionable Revenue net of allowance    Concession Fee Payable - 4% Concession Fee Reported by Fox Add'l Concession Payable    # of Months to Current   Interest Rate Annually 18% or 1.5% Per Month  Total Add'l Concession Payable  and Interest Payable

Total     1,080,105       1,021,349  58,756        21,615       80,371                              12/09  9,337  5  46,685     46,605  46,605  80     12   14.40       94.40                              11/09  8,515  5  42,575     42,370  42,370  205     13   39.98       244.98               390              10/09  12,766  5  63,830     63,440  63,440      14   81.90       471.90                              09/09  14,817  5  74,085     72,780  72,780  1,305     15   293.63       1,598.63                              08/09  18,458  5  92,290     91,780  91,780  510     16   122.40       632.40                              07/09  17,432  5  87,160     87,275  87,275  (115)     17                   06/09  12,592  5  62,960     62,560  62,560  400     18   108.00       508.00                              05/09  10,708  5  53,540     45,310  45,535  8,005     19   2,281.43       10,286.43                              04/09  8,425  5  42,125     42,070  42,070  55     20   16.50       71.50                            8,749    43,745     43,915
13
























03/09   5               21      43,915  (170)              02/09  11,583  5  57,915     47,780        22   3,344.55       13,479.55                 47,780  10,135              01/09  11,494  5  57,470     57,255        23   74.18       289.18                 57,255  215              12/08  14,092  5  70,460     70,210        24   90.00       340.00                 70,210  250              11/08  14,232  5  71,160     70,207        25   357.26       1,309.95                 70,207  953                     FOR THE SEVENTEEN MONTHS ENDED DECEMBER 2009       10/08  17,169  5  85,845     79,471        26   2,485.86       8,859.86                 79,471  6,374            20,564  5  102,820     78,535        27      78,535  24,285                   INTEREST CALCULATED AS OF 11/30/10     09/08
9,835.33       34,120.09







SCHEDULE C - CFC UNDERREPORTING       08/08 5,088 5 25,440    19,560 19,560 5,880    28   2,469.60      8,349.60        # of Months to Current Interest Rate Annually 18%     Add'l CFC Payable      or 1.5% Per Month    Total Add'l CFC Payable and Interest                               FOX RENT A CAR        Month # of Transaction Days $ Rate CFC Payable    Per activity reported CFC Payment

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