INTERNAL AUDIT REPORT 
Limited Contract Compliance Audit 
Concourse Concessions LLC 

January 1, 2017  December 31, 2019 

Issue Date: September 10, 2020 
Report No. 2020-08 




INTERNAL AUDIT

Concourse Concessions LLC 
January 2017  December 2019 

TABLE OF CONTENTS 

Executive Summary ................................................................................................................................................ 3 
Background ............................................................................................................................................................. 4 
Audit Scope and Methodology ............................................................................................................................... 5 
Schedule of Findings and Recommendations ....................................................................................................... 6 
Appendix A: Risk Ratings ....................................................................................................................................... 9 














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Concourse Concessions LLC 
January 2017  December 2019 
Executive Summary 
Internal Audit (IA) completed an audit of the Lease Agreement (Agreement) between Concourse
Concessions LLC and the Port of Seattle (Port). The Period audited was January 1, 2017 through
December 31, 2019. The audit was performed to determine whether Concourse Concessions complied
with significant provisions of the Agreement, including whether reported gross revenues and percentage
fees were complete and accurate. 
Our audit identified the following two issues: 
1)  (Medium)  Effective April 1, 2018, the Minimum Annual Guarantee (MAG) was removed from
the Agreement. As a result, the criteria, previously used to calculate the security deposit, was
eliminated and the Port was unable to verify the reasonableness of the current security deposit. 
2)  (Low)  Concourse Concessions did not report $12,721 in gross revenue during the period under
audit. These amounts were from cash shortages that Concourse Concessions removed from
their revenue reports prior to submittal to the Port. As a result, approximately $1,527 in additional
percentage fees are due to the Port. 

The issues are discussed in more detail on page six. 
We extend our appreciation to management and staff of the Airport Dining and Retail, the Aviation
Finance and Budget, and the Accounting and Financial Reporting (AFR) departments for their
assistance and cooperation during the audit. 


Glenn Fernandes, CPA 
Director, Internal Audit 






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

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Concourse Concessions LLC 
January 2017  December 2019 
Background 
Concourse Concessions, headquartered in Washington State, was founded in 2002 with operations
starting at Seattle-Tacoma International Airport in June of 2004. The Port has two active agreements
with Concourse Concessions; Agreement Numbers: 002055 and 002362. The locations covered by
these agreements were Waji's, Caffe D'arte, La Pisa Caf, and Coffee Bean and Tea Leaf. Based on
the risk assessment conducted for 2020 audit plan, we selected Agreement No. 002055 for our audit. 
The Port entered into Agreement No. 002055 on June 22, 2016, with a commencement date of January 
1, 2017 and an expiration date of December 31, 2023. The Agreement included the following three
locations: 
La Pisa Caf 
Waji's 
Coffee Bean and Tea Leaf (lease terminated in September of 2019) 
The original terms of the lease required a Minimum Annual Guarantee (MAG) equal to 90% of the prior
year's determined rent or a monthly rent based on the percentages by location and concession category,
whichever is higher. Effective April 1, 2018, the Lease Agreement was amended and eliminated the
MAG. Additionally, the amended Agreement required Concourse Concessions to pay the Port a
graduated percentage fee based on combined annual gross receipts as shown in the table below. The
Percentage Fee is due by the 15th of the following month. 
Combined Annual Gross Receipts              Percentage of Gross Sales 
Less than or equal to $2,000,000                                           12.0% 
Greater than $2,000,000 but less than or equal to $4,000,000                13.0% 
Greater than $4,000,000                                                 15.0% 
The table below reflects the Gross Revenues as reported by Concourse Concessions and the
Minimum Annual Guarantee (MAG) and Percentage Fees, as billed by the Port of Seattle. 

Year            Gross Revenue          MAG1       Percentage Fees       Total Rent 
2017              $7,434,388      $715,776             $259,260        $975,036 
2018                 $7,539,330       $203,963 2              $794,193         $998,156 
2019                $7,199,177                           $1,066,003       $1,066,003 
Total                 $22,172,895        $919,739              $2,119,456        $3,039,195 
Source: Concourse Concessions Monthly Revenue Reports; PeopleSoft Financials, AFR year-end documents 






1 MAG was used for "Minimum Rent" but was eliminated on April 1, 2018. 
2 MAG for 2018 reflects three months; January  March. 

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Concourse Concessions LLC 
January 2017  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 period audited was January 2017 through December 2019. After identifying significant provisions
in the Agreement, we performed the following audit procedures: 
Revenue Completeness and Accuracy 
Traced concession payments to the Port records to verify payments were received by Agreement
dates. 
Agreed revenues reported to the Port, to the Concessionaire's monthly revenue reports, charge
sheets, and to independently audited schedules. 
Analyzed deductions in the data sheets to determine whether they were properly classified and
correctly deducted from the gross revenues, as provided in the Lease Agreement. 
Surety 
Reviewed the Concessionaire's Rent Security Deposit for compliance with the Lease Agreement,
the Port Policy (Port RE-2) and Washington State Law (RCW 53.08.085). 










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Concourse Concessions LLC 
January 2017  December 2019 
Schedule of Findings and Recommendations 
1) Rating: Medium 
Effective April 1, 2018, the Minimum Annual Guarantee (MAG) was removed from the
Agreement. As a result, the criteria, previously used to calculate the security deposit, was
eliminated and the Port was unable to verify the reasonableness of the current security
deposit. 
A valid and adequate security deposit is important in the event the lessee fails to pay amounts owed or
goes out of business. 
State law (RCW 53.08.085), requires the surety to be an amount equal to one-sixth of the total rent,
but not less than an amount equal to one year's rent or more than an amount equal to three years'
rent. One year's surety would have been $715,776 in 2017; equal to one year's MAG, however the law
allows the Port Commission to waive the rent security requirement, or lower the amount, at their
discretion, which the Port chose to do by approving Policy RE-2 (RE-2). Surety for 2017 was set at
$357,888. 
The Port Commission approved RE-2 which provides guidelines for the calculation of surety. The
Policy was last updated on October 20, 1995 and per this policy, if the term of the agreement is five
years or more, the security deposit should be an amount equal to six months of rent. After consulting
with Legal, Aviation Properties confirmed that rent, per RE-2 refers to the MAG. RE-2 does not provide
criteria to calculate a security deposit amount in situations when there is no MAG. 
In alignment with RE-2 the Agreement requires the lessee to obtain and deliver to the Port an
irrevocable stand-by letter of credit, a bond, or other security deposit in a form approved by the Port.
The security deposit must be an amount equal to one-half of the MAG, however, there was an
amendment to the Agreement, in April of 2018, that eliminated the MAG. Section 11.1 of the
Agreement was not updated to align with the amended terms, resulting in the elimination of the criteria
needed to calculate the security deposit. 
The current surety amount of $357,888 was calculated based on the first year's MAG (2017). Once the
MAG was eliminated in 2018, the surety amount was carried forward without adjustment due to the
absence of a criteria in the amendment. 
Additionally, in order to provide relief to concessionaires, because of business closures related to the
COVID-19 pandemic, the Port eliminated MAG requirements for the period of March 2020 through
December 2020. With the elimination of MAGs, there is a potential that the Port may encounter an 
issue like the one discussed above. 
Recommendations: 
1)  Policy RE-2 should be reviewed and revised to address the issues identified above. 
2)  The Agreement should be amended to include criteria for the security deposit calculation, in
alignment with the revised Port RE-2 policy. 


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Concourse Concessions LLC 
January 2017  December 2019 
Management Response/Action Plan: 
Management has identified that this is an issue within many contracts outside of the current contract
undergoing audit. Management is seeking Legal review and recommendations for modifications of the 
Port Policy RE-2 as the current policy is not aligned with industry standards, does not account for
varying contract terms, and could be considered a barrier to entry for many small and minority
businesses. 

DUE DATE: 12/31/2020 















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Concourse Concessions LLC 
January 2017  December 2019 

2) Rating: Low 
Concourse Concessions did not report $12,721 in gross revenue during the period under audit.
These amounts were from cash shortages that Concourse Concessions removed from their
revenue reports prior to submittal to the Port. As a result, approximately $1,527 in additional
percentage fees are due to the Port. 
Cash "Short/Over"  is an income statement account within the company's general ledger ,  where
Concourse Concessions records any over or under cash between the daily cash receipts and what is
counted in the cash register. 
During the three-year audit period, $12,721 was coded as cash shortages and was not included in the
revenues reported to the Port. The Agreement does not list cash shortage as an allowable deduction
from gross revenues. 
Prior to the first amendment of the contract, percentage fees were billed according to the following
concession categories: 
Concession Category                    Percentage of Gross Receipts 
A.  Non-Branded Food and Beverage                                  13.5% 
B.  Branded Food and Beverage                                       11.5% 
C.  Alcohol, Beer, and Wine                                           17.5% 
D.  Souvenir Merchandise                                            26.5% 
E.  Advertising and All Others                                          14.5% 
The cash shortage was listed as a monthly lump sum amount, and not separated by category. Therefore,
Internal Audit was unable to accurately calculate the amount due to the Port. To determine a reasonable
estimate of the percentage fee due, Internal Audit used the lowest rate applicable in the current tier
system, which is 12% (refer to the table on page 4). As a result, approximately $1,527 is due to the Port. 
Recommendation: 
1.  Seek and recover $1,527 in underpaid percentage fee. 
Management Response/Action Plan: 
Management has identified that the tenant did in fact understate their revenues generated at the
airport resulting in an incorrect billing of percentage fees due to the Port by the tenant. Management
will be seeking immediate payment of fund from the tenant once a final amount (amount owed
including interest and late fees) has been determined. 

DUE DATE: 12/31/2020 




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Concourse Concessions LLC 
January 2017  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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