Fox Rent-A-Car, Inc.
INTERNAL AUDIT REPORT LIMITED CONTRACT COMPLIANCE FOX RENT-A-CAR, INC. JUNE 2014 MAY 2017 ISSUE DATE: AUGUST 7, 2018 REPORT NO. 2018-07 FOX Rent-A-Car, Inc. INTERNAL AUDIT June 2014 May 2017 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................................... 3 BACKGROUND ....................................................................................................................................................... 4 AUDIT SCOPE AND METHODOLOGY ...................................................................................................................... 5 SCHEDULE OF FINDINGS AND RECOMMENDATIONS .......................................................................................... 6 APPENDIX A: RISK RATINGS.................................................................................................................................. 8 2 FOX Rent-A-Car, Inc. INTERNAL AUDIT June 2014 May 2017 EXECUTIVE SUMMARY Internal Audit (IA) completed an audit of the Lease Agreement between FOX Rent-A-Car, INC. (FOX / Operator) and the Port of Seattle (Port) for the period June 1, 2014 through May 31, 2017. The audit objective was to determine whether the Operator complied with significant financial provisions of the Agreement, including whether reported gross revenues and the Customer Facility Charges (CFC) paid to the Port were complete and reasonable. We determined that the Operator underreported certain gross revenue items and the CFC. 1) FOX did not report $521,500 in incidental gross revenue, resulting in approximately $52,150 in additional Percentage Fees owed to the Port. 2) The Lease Agreement requires the Operator to remit the full amount of the CFC regardless of whether or not the full amount is actually collected. In certain instances, FOX did not charge the CFC and as a result, did not remit $10,578 to the Port. The two items resulted in an underpayment to the Port of approximately $63,000 for the three-year period ending May 31, 2017. These issues are discussed in more detail beginning on page six and seven of this report. We extend our appreciation to management and staff of the Aviation Commercial Management Department, the Operator, and the Accounting and Financial Reporting Department for their assistance and cooperation during the audit. Glenn Fernandes, CPA Director, Internal Audit RESPONSIBLE MANAGEMENT TEAM Lance Lyttle, Managing Director Aviation Jim Schone, Director AV Commercial Management Jason Johnson, Aviation Property Manager 3 3 FOX Rent-A-Car, Inc. INTERNAL AUDIT June 2014 May 2017 BACKGROUND Fox Rent-A-Car, Inc. (FOX) is a California corporation that provides automobile rental services. The company operates in 20 locations throughout the Western United States, including California, Washington, Utah, Nevada, and Arizona. In July 2008, the Port entered into a Consolidate Rental Car Facility Lease Agreement (Agreement) with FOX. The terms of the Agreement provide for a Minimum Annual Guarantee (MAG) of the higher of: (1) 85% of the total amount paid to the Port in the previous Agreement year, or (2) the Initial MAG, bid by the Operator, of $501,000. Additionally, the Agreement requires a Percentage Fee equal to 10% of the Operator's gross revenues, provided the fee is higher than the monthly MAG. 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. The Agreement states that the Operator must collect a Customer Facility Charge (CFC) of $6 per rental day. The table below reflects total gross revenue, percentage fees, and CFC fees: REPORTED GROSS REVENUE / PERCENTAGE FEES / CFC FEES REPORTED GROSS CONCESSION AGREEMENT YEAR REVENUES FEES REPORTED CFC FEES 2014-2015 $10,014,977 $1,001,498 $1,428,216 2015-2016 11,289,695 1,128,970 1,589,052 2016-2017 11,661,478 1,166,148 1,443,594 TOTAL $32,966,150 $3,296,616 $4,460,862 Data Source: PeopleSoft Financials and Propworks 4 FOX Rent-A-Car, Inc. INTERNAL AUDIT June 2014 May 2017 AUDIT SCOPE AND METHODOLOGY We conducted this 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. The period audited was June 2014 through May 2017. After identifying significant provisions in the Agreement, we performed audit procedures that included: Revenue Completeness and Accuracy Traced concession payments to Port records to verify payments were received by Agreement dates. Agreed revenue reported to the Port, to the Operator's general ledger, revenue reports, and to FOX audited schedules. Customer Facility Charge Agreed Operator's audited CFC counts to database records. Reviewed checkout and return date records to assess the reasonableness of daily transactions. Insurance and Rent Security Determined whether commercial general liability insurance and rent security met Agreement requirements. 5 FOX Rent-A-Car, Inc. INTERNAL AUDIT June 2014 May 2017 SCHEDULE OF FINDINGS AND RECOMMENDATIONS 1) RATING: MEDIUM FOX did not report $521,500 in incidental gross revenue, resulting in approximately $52,150 in additional Percentage Fees owed to the Port. Our analysis of the Operator's financial records and testing of transactions identified the following items that were not included in Gross Revenues when reported to the Port: Time and Mileage Fees Energy Recovery Fee Customer / Business Rebates Early Charge Detailing Fee The Operator has acknowledged these items. The underreported revenue is reflected in the table below. ADDITIONAL PERCENTAGE FEE DUE TO THE PORT AGREEMENT YEAR REPORTED AUDITED DIFFERENCE 2014-2015 $10,014,977 $10,182,508 $167,531 2015-2016 11,289,695 11,469,324 179,629 2016-2017 11,661,478 11,835,818 174,340 Concession Revenue Underreported $521,500 Concession Fee Due $52,150 Data Source: PeopleSoft Financials, Propworks, FOX records Recommendations: 1. Seek and recover $52,150 in underpaid Percentage Fees. 2. Assess the applicability of a one-time late charge and any accrued interest. 3. Communicate with the Operator, to assure that future reported Gross Revenues include the items listed above. Management Response / Action Plan Aviation Commercial Management will seek to recover the underpaid Percentage Fees, together with any applicable late fees and interest charges. Aviation Commercial Management will also communicate both verbally and in writing that the revenues identified above, are not permitted exclusions from revenue according to the Agreement. Therefore, effectively immediately, those revenue items are required to be included in their monthly reports of gross revenues provided to the Port. Revised reports that include these excluded gross revenues, as well as payment of any additional Percentage Fees, will be requested for those months that have transpired since the end of the audit period. DUE DATE: 10/31/2018 6 Fox Rent-A-Car, Inc. INTERNAL AUDIT June 2014 May 2017 2) RATING: MEDIUM The Agreement requires the Operator to remit the full amount of the CFC regardless of whether or not the full amount is actually collected. In certain instances, FOX did not charge the CFC and as a result, did not remit $10,578 to the Port. The lease Agreement under Section 6.2.1 stipulates: "Each Operator must collect the Customer Facility Charge at the time the first payment is made for a qualifying vehicle rental transaction, and must remit the full amount of the Customer Facility Charge to the Port regardless of whether or not the full amount of such Customer Facility Charge is actually collected by the Operator from the person who rented the automobile." The Operator acknowledged the differences in CFC, which are summarized in the table below: ADDITIONAL CFC DUE TO THE PORT AGREEMENT YEAR REPORTED AUDITED DIFFERENCE 2014-2015 $1,428,216 $1,439,304 $11,088 2015-2016 1,589,052 1,590,006 954 2016-2017 1,443,594 1,442,130 (1,464) CFC Due $10,578 Data Source: PeopleSoft Financials, Propworks, FOX records Recommendations 1. Seek and recover the $10,578 in underpaid Percentage Fees. 2. Assess the applicability of a one-time late charge and any accrued interest. 3. Communicate with the Operator, to assure that future CFC's are remitted as required by the Agreement. Management Response / Action Plan Aviation Commercial Management will seek to recover the underpaid CFC's, together with any applicable late fees and interest charges. Aviation Commercial Management will also communicate both verbally and in writing to remind the Operator of their obligations with respect to collection and remittance of the CFC to the Port. DUE DATE: 10/31/2018 7 Fox Rent-A-Car, Inc. INTERNAL AUDIT June 2014 May 2017 APPENDIX A: RISK RATINGS Findings identified during the course of the audit are assigned a risk rating, as outlined in the table below. The risk rating is based on the financial, operational, compliance or reputational impact the issue identified has on the Port. Items deemed "Low Risk" will be considered "Exit Items" and will not be brought to the final report. Port Rating Financial Internal Controls Compliance Public Commission/ Management Large financial High Noncompliance impact probability for Important Missing, or with applicable external audit inadequate key Federal, State, and HIGH Remiss in issues and/or Requires internal controls Local Laws, or Port responsibilities of negative immediate Policies being a custodian public attention of public trust perception Partial controls Potential for Relatively Inconsistent external audit important Not adequate to compliance with Moderate issues and/or MEDIUM identify Federal, State, and financial impact negative May or may not noncompliance or Local Laws, or Port public require immediate misappropriation Policies perception attention timely Internal controls in Low place but not probability for Generally complies consistently efficient external audit Lower significance with Federal, State Low financial or effective issues and/or LOW/ and Local Laws or impact negative May not require Exit Items Port Policies, but Implementing/enhan public immediate some minor cing controls could perception attention discrepancies exist prevent future problems 8
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