Internal Audit Report

Fireworks
Lease and Concession Compliance Audit

June 1, 2006 through May 31, 2008




Issue Date: September 1, 2009
Report No. 2009-12

Internal Audit 
Fireworks (Agreement No. 612)
Audit Period: June 1, 2006  May 31, 2008

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












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Internal Audit 
Fireworks (Agreement No. 612)
Audit Period: June 1, 2006  May 31, 2008

Internal Auditor's Report
We have completed the audit of the Lease and Concession Agreement between the Port of Seattle
(Port) and Fireworks for the period of June 1, 2006 through May 31, 2008.
We conducted our audit using due professional care and we planned and performed the audit to
obtain reasonable assurance as to whether the lessee and the Port had complied with the
provisions of the lease agreement.
The objectives of the audit was to verify gross receipts were properly reported to the Port in
accordance with the terms of the lease agreement and that the Lessee properly calculated and
paid the appropriate concession fees due to the Port on time. We also reviewed the effectiveness
of Port management's monitoring system over the lease agreement.
The Lessee materially complied with the terms of conditions of the agreement including, but is not
limited to, the proper reporting of gross receipts and accurate/timely remittance of the concession
fees. Additionally Port management effectively monitored the agreement to assure compliance.
However, there were two instances of late payments that resulted in $1,366.14 in late charges and
interest due to the Port.
We extend our appreciation to Aviation Business Development and staff for their assistance and
cooperation during the audit.


Joyce Kirangi, CPA
Sr. Internal Audit Manger





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Internal Audit 
Fireworks (Agreement No. 612)
Audit Period: June 1, 2006  May 31, 2008

Executive Summary
Audit Scope and Objective The purpose of the audit was to determine compliance with the
provisions of the Lease and Concession Agreement No. 612. We examined the books and records
of Fireworks (Lessee) in order to verify gross receipts were properly reported to the Port in
accordance with the terms of the lease agreement and the Lessee properly calculated and paid the
appropriate concession fees due to the Port on time. We also reviewed the effectiveness of Port
management's monitoring system over the lease agreement.

Agreement Terms The Lease and Concession Agreement No. 612 authorizes Fireworks to
operate a concession at the airport. In accordance with the lease, the Lessee pays the Port a
three-tier concession fee that ranges from ten percent (10%) of gross receipts to twelve percent
(12%) of gross receipts based on the level of gross receipts.

Audit Result Summary The Lessee materially complied with the terms of conditions of the
agreement including, but is not limited to, the proper reporting of gross receipts and accurate/timely 
remittance of the concession fees. Additionally Port management effectively monitored the
agreement to assure compliance. However, there were two instances of late payments that
resulted in $1,366.14 in late charges and interest due to the Port.









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Internal Audit 
Fireworks (Agreement No. 612)
Audit Period: June 1, 2006  May 31, 2008

Background
Fireworks operates a number of galleries in the Seattle area including a gallery at the Seattle
Tacoma International Airport.
The lease agreement requires the following three-tier concession fees:
ten percent (10%) of gross receipts under $1,000,000
eleven percent (11%) of gross receipts between $1,000,000 and $3,000,000
twelve percent (12%) of gross receipts over $3,000,000
The gross receipts as reported to the Port for the respective lease years under review are as
follows:
2006       2007       2008 
$ 3,280,692   $ 3,771,189  $ 4,104,668
Source: PeopleSoft and Fireworks reporting

Audit Objectives
We reviewed the Lessee's records in order to verify that the Lessee had:
Properly reported its gross receipts to the Port in accordance with the terms of the lease
agreement
Properly calculated and paid the appropriate concession fee due to the Port
Paid concession fees on time and in accordance with the terms of the agreement
We also reviewed the effectiveness of Port management's monitoring system over the lease
agreement.

Audit Scope
The scope of the audit covered the period of June 1, 2006 through May 31, 2008.

Audit Approach
To achieve our audit objectives, we performed the following procedures:
Obtained an understanding of the lease agreement and the significant compliance
requirements
Reviewed Port internal controls and monitoring activities over the lease requirements
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Internal Audit 
Fireworks (Agreement No. 612)
Audit Period: June 1, 2006  May 31, 2008
Obtained relevant financial data from the Lessee
Analyzed data (internal & external) to determine completeness and compliance
Conclusion
The Lessee materially complied with the terms of conditions of the agreement including, but is not
limited to, the proper reporting of gross receipts and accurate/timely remittance of the concession
fees. Additionally Port management effectively monitored the agreement to assure compliance.
However, there were two instances of late payments that resulted in $1,366.14 in late charges and
interest due to the Port.














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Internal Audit 
Fireworks (Agreement No. 612)
Audit Period: June 1, 2006  May 31, 2008

Schedule of Findings and Recommendations

1) Late Payments
The Lessee had two late payments that exceeded the 10-day grace period. Paragraph 8 of the
lease agreement imposes 1) late charge of five percent (5%) on overdue payments by more than
ten days past the grace period, and 2) interest at eighteen percent (18%) per annum on the unpaid
balance. The late charges amounted to $1,080.53 and interest of $285.61 for the two late
payments.
Recommendation:
We recommend that Aviation Business Development bill and collect $1,366.14.

Management Response:
It is not Aviation Business Development's role or responsibility to bill and collect late fees or
interest from tenants for late payments. Tenants report and submit payments to the Port's
Accounting department which determines their timeliness and has responsibility for determining
late fees due to the Port. Billing of late fees has, to our knowledge, not been included in the
automated billing processes in Accounting until 2009.
Fireworks has been a tenant since May 2005, and has made approximately 48 payments to the
Port. It is difficult to know what extenuating circumstances may have existed with the two
payments in question. Fireworks achieved sales of more than $4 million in 2008, resulting in
nearly a half million dollars in revenue for the Port. By comparison, a deficiency of less than
$1,400 does not seem significant. However, it is unfortunate that this deficiency could not have
been brought to the tenant's attention in a more timely fashion.






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