Commission Meetings

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 











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          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 

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          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. 






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          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. 









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          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 

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          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 







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