Mad Anthony's Report
INTERNAL AUDIT REPORT LIMITED CONTRACT COMPLIANCE MAD ANTHONY’S, INC. FISHERMEN’S TERMINAL JANUARY 1, 2017 – DECEMBER 31, 2018 ISSUE DATE: APRIL 23, 2019 REPORT NO. 2019-05 INTERNAL AUDIT Mad Anthony’s Inc. January 2017 – December 2018 TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................................................................................................... 3 BACKGROUND ........................................................................................................................................................ 4 AUDIT SCOPE AND METHODOLOGY ..................................................................................................................... 5 SCHEDULE OF FINDINGS AND RECOMMENDATIONS......................................................................................... 6 APPENDIX A: RISK RATINGS .................................................................................................................................. 6 2 Mad Anthony’s Inc. January 2017 – December 2018 EXECUTIVE SUMMARY Internal Audit (IA) completed an audit of the Fishermen’s Terminal Restaurant Lease Agreement (Agreement) between Mad Anthony’s Inc. and the Port of Seattle (Port). The Agreement was signed in 1987 for Mad Anthony’s to operate Chinook’s Restaurant at Fishermen’s Terminal. The period audited was January 1, 2017 through December 31, 2018. The audit was performed to determine whether Mad Anthony’s complied with significant provisions of the Agreement including whether reported gross revenues and the percentage rent paid to the Port were complete and accurate. We identified two items that, per the contract, Mad Anthony’s should have included in gross revenue. 1) Mad Anthony’s did not report $194,461.17 in gross revenue to the Port, during the two-year period under audit. These amounts were from Surcharges and Family and Friends Meals, which resulted in approximately $15,557 in additional percentage fees, due to the Port. The issue is discussed in more detail on page six. We extend our appreciation to management and staff of the Economic Development Department, Mad Anthony’s, and the Accounting and Financial Reporting Department for their assistance and cooperation during the audit. Glenn Fernandes, CPA Director, Internal Audit RESPONSIBLE MANAGEMENT TEAM Dave McFadden, Managing Director, Economic Development Melinda Miller, Director, Real Estate Asset Management Rebecca Schwan, Senior Real Estate Manager 3 Mad Anthony’s Inc. January 2017 – December 2018 BACKGROUND Anthony’s Restaurant is a family of unique restaurants located throughout the Pacific Northwest. Anthony’s is locally owned and focuses on waterfront view locations throughout the Puget Sound. One of those locations is Chinook’s on Salmon Bay at Seattle’s Fishermen’s Terminal. In September 1987, the Port entered into a Lease Agreement with Mad Anthony’s to operate Chinook’s restaurant at Fishermen’s Terminal. The Agreement sets a fixed Minimum Rent and also requires additional Percentage Rent from gross sales of food and beverage, as well as any other sales. Effective in 1990, percentage rent was established at 6.25% of gross sales, up to the first $3 million of annual gross sales. The $3 million figure has been adjusted annually since 1990, for the annual percentage change in the “food and beverage component” of the US Consumer Price Index (CPI) for the Seattle-Everett Area. Percentage rent in excess of the CPI adjusted threshold is charged at 8%. Monthly minimum rent is due on or before the first day of each calendar month. For quarterly percentage rent, the computation of gross sales for the preceding quarter must be certified by an officer of the Lessee and submitted to the Port within 30 days of each quarter ended. The table below reflects total Gross Revenues, Minimum Rent, and Percentage Rent, as reported by Anthony’s: Year Gross Revenue Minimum Rent Percentage Rent Total Rent 2014 $6,660,194 $339,479 $97,539 $437,018 2015 6,081,214 338,929 127,399 466,328 2016 7,281,630 347,090 135,811 482,901 2017 7,391,794 356,316 134,753 491,069 2018 7,340,829 370,242 114,247 484,489 Total $34,755,661 $1,752,056 $609,749 $2,361,805 Source: AFR YE files, PeopleSoft, Mad Anthony's certified revenue reports. 4 Mad Anthony’s Inc. January 2017 – December 2018 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 January 2017 through December 2018. After identifying the significant provisions in the Agreement, we performed audit procedures that included: Revenue Completeness and Accuracy • Reconciled revenues reported to the Port, to the Lessee’s general ledger and to the revenue reports certified by Mad Anthony’s. • Identified large variances or unusual revenue trends and inquired with Mad Anthony’s to determine the nature and cause. • Verified an accurate Consumer Price Index was used to calculate the percentage of revenue calculation. • Agreed point of sales data to general ledger and revenue reports. • Verified the timeliness of payments. Insurance and Rent Security • Determined whether commercial general liability insurance and rent security complied with Agreement terms. 5 Mad Anthony’s Inc. January 2017 – December 2018 SCHEDULE OF FINDINGS AND RECOMMENDATIONS 1) RATING: MEDIUM Mad Anthony’s did not report $194,461.17 in gross revenue to the Port, during the two-year period under audit. These amounts were from Surcharges and Family and Friends Meals, which resulted in approximately $15,557 in additional percentage fees, due to the Port. Surcharge From January 2017 through March 2018, a four percent surcharge was added to customer’s bills. This surcharge is different from server tips, which are generally excludable from gross revenue. Half (2%) of the surcharge or $172,055.21 which was paid to kitchen staff, was not included in gross revenue. The Agreement does not list surcharges as an allowable deduction from gross revenue. Employee Meals During our two year scope period, $22,405.96 was coded to employee meals and not included in revenue. These meals included family and friends of the employee and was offered at a 25% discount. While employee meals are listed as an approved deduction from gross revenue, the Agreement does not identify revenue earned for the family and friends portion of the meals, as an allowable exclusion. Recommendations: Management should pursue collection of the additional percentage fees detailed above. Management Response/Action Plan: Management accepts that Mad Anthony’s has understated revenues during the audit period and will pursue collection of $15,557. DUE DATE: 12/31/2019 6 Mad Anthony’s Inc. January 2017 – December 2018 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 Commission/ Rating Financial Internal Controls Compliance Public Management Large financial impact Noncompliance High probability with applicable Important Missing, or inadequate for external audit Remiss in Federal, State, HIGH key internal controls issues and/or responsibilities and Local Laws, Requires immediate negative public of being a or Port Policies attention perception custodian of public trust Partial controls Inconsistent Potential for Relatively important compliance with external audit Moderate MEDIUM Not adequate to identify Federal, State, issues and/or May or may not financial impact noncompliance or and Local Laws, negative public require immediate misappropriation timely or Port Policies perception attention Generally Internal controls in place Low probability complies with but not consistently for external audit Federal, State and Lower significance Low financial efficient or effective issues and/or LOW/ Local Laws or Port impact negative public Exit Items Policies, but some May not require Implementing/enhancing perception minor immediate attention controls could prevent discrepancies future problems exist Efficiency An efficiency opportunity is where controls are functioning as intended; however, a modification would make Opportunity the process more efficient 7
Limitations of Translatable Documents
PDF files are created with text and images are placed at an exact position on a page of a fixed size.
Web pages are fluid in nature, and the exact positioning of PDF text creates presentation problems.
PDFs that are full page graphics, or scanned pages are generally unable to be made accessible, In these cases, viewing whatever plain text could be extracted is the only alternative.