Limited Contract Compliance Audit Qdoba

INTERNAL AUDIT REPORT 
Limited Contract Compliance Audit 
Qdoba Restaurant Corporation 

February 2018  December 31, 2019 

Issue Date: May 28, 2020 
Report No. 2020-07 




INTERNAL AUDIT

Qdoba Restaurant Corporation 
February 2018  December 2019 
TABLE OF CONTENTS 

Executive Summary ................................................................................................................................................ 3 
Background ............................................................................................................................................................. 4 
Audit Scope and Methodology ............................................................................................................................... 5 
Appendix A: Risk Ratings ....................................................................................................................................... 6 















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Qdoba Restaurant Corporation 
February 2018  December 2019 
Executive Summary 
Internal Audit (IA) completed an audit of the Concession Lease Agreement between Qdoba Restaurant
Corporation and the Port of Seattle (Port). 
The Period audited was February 1, 2018 through December 31, 2019. The audit was performed to 
determine  whether  Qdoba  Restaurant  Corporation  complied  with  significant  provisions  of  the
Agreement, including whether reported gross revenues and percentage fees were complete and
accurate. 
We concluded that the Lessee materially complied with the significant terms in the Agreement. 
No issues were identified requiring management response. 
We extend our appreciation to management and staff of the Airport Dining and Retail and the Accounting
and Financial Reporting Departments for their assistance and cooperation during the audit. 


Glenn Fernandes, CPA 
Director, Internal Audit 








RESPONSIBLE MANAGEMENT TEAM 
Jim Schone, Director, Aviation Business Development 
Dawn Hunter, Senior Manager Airport Dining and Retail 


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Qdoba Restaurant Corporation 
February 2018  December 2019 
Background 
Qdoba Restaurant Corporation, headquartered in California, was founded in 1995. Trading as Qdoba
Mexican Eats, it now has 740 restaurants in the United States and Canada. 
The Port of Seattle (Port) entered into a Concession Lease Agreement (Agreement No 002096) with
Qdoba Restaurant Corporation, on August 10 2016, with an occupancy date of March 17, 2017. The
lease expires on August 30, 2027. As per this Agreement, which was the one covered in the scope of
this audit, the first agreement year was February 2018 to December 2018. The second agreement year
was January to December 2019. 
The terms of the Agreement provide for an initial Minimum Annual Guarantee (MAG) which is equals to
$ 510,000 per annum, payable in advance on the 1st day of the month. For subsequent years, the MAG
is equal to 85% of the total amount paid to the Port for the previous Agreement Year. 
Additionally, the Agreement requires a Percentage Fee that is calculated on a graduated scale as shown
in the table below. The Percentage Fee, if applicable, is due by the 15th of the following month. 
Annual Gross Sales         Percentage of
Gross Sales 
Less than $ 3,400,000                 15.0% 
$ 3,400,000 - $ 5,500,000              17.5% 
More than $ 5,500,000                20.0% 
The table below reflects the Gross Revenues as reported by Qdoba and the Minimum Rent and
Percentage Fees as billed by the Port of Seattle: 

Year         Gross Revenue         Minimum Rent       Percentage Fees         Total Rent 
2018 1             6,228,878                467,500                 555,776          1,023,276 
2019              7,199,177               510,000                708,472          1,218,472 
Total             $13,428,055               $ 977,500               $1,264,248         $2,241,748 
Source: Qdoba Monthly Revenue Reports; Peoplesoft Financials, AFR YE documents 






1 The 2018 figures are for 11 months starting from February to December 2018 

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Qdoba Restaurant Corporation 
February 2018  December 2019 
Audit Scope and Methodology 
We conducted the engagement 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 conduct an engagement to obtain sufficient and appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our engagement objectives. We believe
that the evidence obtained provides a reasonable basis for our conclusions based on our engagement
objectives. 
The Agreement reviewed during this audit was Agreement number 002096 and the period was February
2018 through December 2019. After identifying significant provisions in the Agreement, we performed
the following audit procedures: 
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 Concessionaire's monthly revenue reports, charge
sheets, and to independently audited schedules. 
Analyzed deductions in the data sheets (General Ledger) to determine whether they were
properly classified and correctly deducted from the gross revenues, as provided in the Lease
Agreement 
Compliance 
Reviewed the Concessionaire's Rent Security Deposit for compliance with the Lease Agreement,
Port of Seattle Policy (Port RE-2) and Washington State Law (RCW 53.08.085). 










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Qdoba Restaurant Corporation 
February 2018  December 2019 
Appendix A: Risk Ratings 
Findings identified during the audit are assigned a risk rating, as outlined in the table below. Only one
of the criteria needs to be met for a finding to be rated High, Medium, or Low. Findings rated Low will be
evaluated and may or may not be reflected in the final report. 
Financial      Internal                                               Commission/
Rating                                   Compliance      Public 
Stewardship  Controls                                         Management 
High probability
Non-compliance
Missing or not                       for external audit   Requires
with Laws, Port
High       Significant     followed                          issues and / or     immediate
Policies, 
negative public     attention 
Contracts 
perception 
Partial              Potential for
Partial controls 
compliance with   external audit
Requires
Medium   Moderate                  Laws, Port       issues and / or
Not functioning                                          attention 
Policies             negative public
effectively 
Contracts          perception 
Functioning as
Low probability
intended but     Mostly complies                       Does not
for external audit
could be        with Laws, Port                       require
Low      Minimal                                    issues and/or
enhanced to     Policies,                            immediate
negative public
improve        Contracts                           attention 
perception 
efficiency 











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