13. E-Z Rent a Car Audit Report
INTERNAL AUDIT REPORT Limited Contract Compliance Audit E-Z Rent A Car, Incorporated June 1, 2016 May 31, 2019 Issue Date: June 22, 2020 Report No. 2020-06 INTERNAL AUDIT E-Z Rent A Car, LLC June 2016 May 2019 TABLE OF CONTENTS Executive Summary ................................................................................................................................................ 3 Background ............................................................................................................................................................. 4 Schedule of Findings and Recommendations ....................................................................................................... 6 Appendix A: Risk Ratings ....................................................................................................................................... 7 2 E-Z Rent A Car, LLC June 2016 May 2019 Executive Summary Internal Audit (IA) completed an audit of the Consolidated Rental Car Facility Lease Agreement (Agreement) between E-Z Rent a Car, Incorporated (E-Z) and the Port of Seattle (Port). The Period audited was June 1, 2016 through May 31, 2019. The audit was performed to determine whether E-Z complied with significant provisions of the Agreement, including whether reported gross revenues and percentage fees were complete and accurate. On Tuesday, May 26, 2020, E-Z filed for chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Wilmington, Delaware. Chapter 11 allows for "reorganization" of a company's obligations and debts as overseen by the court. Our audit identified the following medium rated issue: (Medium) - Internal Audit identified $8,904 in under reported customer facility charges (CFC) and approximately $7,297 in under reported revenue. As a result, $16,201 is due to the Port. The issue is discussed in more detail on page six. We extend our appreciation to management and staff of the Aviation Commercial Management Department and the Accounting and Financial Reporting Department for their assistance and cooperation during the audit. Glenn Fernandes, CPA Director, Internal Audit RESPONSIBLE MANAGEMENT TEAM Jim Schone, Director, Aviation Business Development Geoffrey Foster, Aviation Property Manager 2 3 E-Z Rent A Car, LLC June 2016 May 2019 Background The Port of Seattle (Port) entered into a Consolidated Rental Car Facility Lease Agreement (Agreement) with E-Z Rent A Car, Incorporated in June of 2010. The terms of the Agreement provide for a Minimum Annual Guarantee (MAG) equal to 85% of the total amount paid to the Port for the previous Agreement Year. Additionally, the Agreement requires a Percentage Fee equal to 10% of 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. The Percentage Fee, if applicable, is due on or before the 20th of the following month. The Agreement states that the Operator must bill a daily Customer Facility Charge (CFC) of $6 on all vehicle rental transactions, and remit the full amount to the Port, regardless of whether or not the full amount is actually collected. The first transaction day provides for a twenty five (25) hour period and each successive day provides for a twenty four (24) hour period. The table below reflects the Gross Revenues, Percentage Fees, and CFC fees: Agreement Year Gross Revenue Percentage Fees CFC Fees June 2016 May 2017 4,763,858 476,386 649,974 June 2017 May 2018 3,992,229 399,223 613,536 June 2018 May 2019 4,286,887 428,689 630,060 Total $13,042,975 $1,304,298 $1,893,570 Source: E-Z Rent a Car Monthly Revenue Reports, Peoplesoft Financials, AFR YE documents 4 E-Z Rent A Car, LLC June 2016 May 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 June 2016 through May 2019 and included the following 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 Operator's monthly revenue reports, charge sheets, and to independently audited schedules. Customer Facility Charge Using Tableau, tested 100% of transactions, by re-calculating the checkout and return dates to assess the accuracy of CFC's charged and remitted. Agreed Operator's audited CFC counts to daily transaction records. Rent Surety Adequacy Compared the Surety posted, to the Provisions of the Agreement, Port Procedures (RE-2 Section E.1.c(2)), and the Revised Code of Washington RCW 53.08.085. 5 E-Z Rent A Car, LLC June 2016 May 2019 Schedule of Findings and Recommendations 1) Rating: Medium Internal Audit identified $8,904 in under reported customer facility charges (CFC) and approximately $7,297 in under reported revenue. As a result, $16,201 is due to the Port. Customer Facility Charge The Agreement requires the Operator to bill a daily CFC of $6 on all vehicle rental transactions, and remit the full amount to the Port, regardless of whether or not the full amount is actually collected. The first transaction day provides for a twenty five (25) hour period and each successive day provides for a twenty four (24) hour period. Using data from the operator, we recalculated the CFC by comparing the check out date and time to the check in date and time. Based on this analysis for the 3-year period under review, we identified 1,484 days or $8,904 of CFC's not collected from the customer, and not remitted to the Port. Revenue Completeness Section 4.2 of the Agreement requires a Percentage Fee equal to 10% of 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. The Percentage Fee, if applicable, is due on or before the 20th of the following month. We performed a reconciliation of accounts between E-Z's general ledger and the revenue reports submitted to the Port. The reconciliation identified under reported revenue totaling $48,791.14. The Percentage Fee due to the Port is 10% or $4,879.11. Excluded General Ledger Accounts A review of E-Z's chart of accounts identified accounts which should have been included in the monthly reporting of revenue to the Port. The total value of the excluded accounts for the three-year period was $24,174.61. The Percentage Fee due to the Port is 10% or $2,417.46. Table below reflects the excluded accounts: Account Code Account Description 4165 EZ Money Credit 4307 Domestic Security Fee 4310 Apt. Transport Fee 4782 Admin-Toll Violation 4780 Admin-Citation/Tolls Recommendation: In conjunction with the Port's Legal Department, file a claim, with the appropriate venue, to recover $16,201 in under reported revenue. Management Response/Action Plan: Aviation Commercial Management agrees with the audit findings and will work with Port Legal to seek reimbursement through the bankruptcy process, including relevant late fees and interest charges, to the extent they are recoverable, whether through the bankruptcy process or through the applicable lease security instrument. Aviation Commercial Management staff appreciates the Internal Audit staff for their work during the audit process. DUE DATE: 10/01/2020 6 E-Z Rent A Car, LLC June 2016 May 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 7
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