2021_04_08_SCM_Audit_STILA_Audit_Report
INTERNAL AUDIT REPORT
Limited Contract Compliance Audit
Seattle-Tacoma International Limousine Association (STILA)
March 1, 2017- December 31, 2020
Issue Date: March 18, 2021
Report No. 2021-02
Seattle-Tacoma International Limousine Association (STILA)
TABLE OF CONTENTS
Executive Summary ................................................................................................................................................. 3
Background ............................................................................................................................................................. 4
Audit Scope and Methodology ............................................................................................................................... 5
Schedule of Findings and Recommendations ....................................................................................................... 6
Appendix A: Risk Ratings ....................................................................................................................................... 10
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Seattle-Tacoma International Limousine Association (STILA)
Executive Summary
Internal Audit (IA) completed an audit of the Lease Agreement (Agreement) between Seattle-Tacoma
International Limousine Association (STILA) and the Port of Seattle (Port), for the period March 1,
2017 through December 31, 2020. The audit was performed to determine whether STILA complied
with significant provisions of the Agreement, including whether reported trip counts, and additional per
trip fees, were complete and accurate.
Vehicle operators at Seattle-Tacoma International Airport (SEA) have seen significant decreases in
their business due to the COVID-19 Pandemic. STILA, like many others, had been hit especially hard.
On December 17, 2020, STILA notified the Port that they would cease operations at SEA on
December 31, 2020. STILA filed for Chapter 7 Bankruptcy on February 17, 2021.
Our audit identified the following two issues:
1) (Medium) STILA did not maintain the daily activity records, as required by the Agreement,
which resulted in a scope limitation. Accordingly, Internal Audit was unable to obtain sufficient
and appropriate audit evidence to provide reasonable assurance that the additional per trip
fees, billed solely on STILA self-reported trip counts, were accurate and complete.
2) (Low) Due to a significant decrease in ridership caused by the COVID-19 Pandemic, STILA
was unable to make its Minimum Annual Guarantee (MAG) payments after the MAG deferral
ended on July 31, 2020. This resulted in approximately $157,284 owed to the Port, which will
be covered by STILA’s surety.
The issues are discussed in more detail on page six.
In addition, we noted that the required surety amount of $183,000 per the lease agreement, which was
one fourth of the annual MAG of $732,000, was not consistent with the Port’s RE-2 Policy (RE-2). RE-
2 required a surety amount of $366,000. RE-2 was last updated on October 20, 1995, and is currently
under management review, as a result of an Internal Audit report on Concourse Concessions LLC,
published in September of 2020.
We extend our appreciation to management and staff of Aviation Business Development, Airport
Landside Operations, Aviation Finance and Budget, and Accounting and Financial Reporting (AFR) for
their assistance and cooperation during the audit.
Glenn Fernandes, CPA
Director, Internal Audit
Responsible Management Team
Rudy Caluza, Director, Accounting and Financial Reporting
Laurel Dunphy, Director, Airport Operations
Dawn Hunter, Director, Aviation Business Development
Lisa Lam, Assistant Director, Financial Reporting Revenue Services
Linda Nelson, Senior Manager, Aviation Finance & Budget
Jeff Wolf, Senior Manager, Aviation Business Development
Geoff Foster, Aviation Property Manager
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Seattle-Tacoma International Limousine Association (STILA)
Background
The Port entered into a five-year Lease Agreement (Agreement Number AIR001991), effective March
1, 2011, with STILA for “the exclusive right to provide On-call Limousine service from the Airport.” The
base term of the agreement expired on February 28, 2016. The Port reserved the right to extend the
term for two additional one year periods, but the Port did not exercise the options and elected to move
to Holdover, under which STILA has since been operating in a month-to-month arrangement.
On-call limousines were available on the North and South Curb of the third floor Ground
Transportation plaza at the SEA. STILA operated with 26 limousines owned by nine companies that
belonged to the Association. Certain limousines, used by STILA, provided pre-arranged limosine
services under their own agreements/permits with the Port.
In exchange for the exclusive right, STILA agreed to pay a MAG equal to $732,000, which was paid in
equal monthly payments on or before the first day of each month. In addition to the MAG, STILA
agreed to pay an additional per trip fee equal to four dollars per outbound trip in excess of 38,000 trips
per year. The additional per trip fee was due by the 15th of the following month.
In March 2016, AFR assumed the billing and collection responsibility. In late 2016, the management of
the Agreement was transferred from Ground Transportation to Aviation Business Development.
In order to provide relief to concessionaires, because of declined business/business closures related
to the COVID-19 pandemic, the Port deferred MAG payments for concessionaires for certain time
periods. STILA was given MAG deferral for the period of April 2020 through July 2020. Repayment of
the deferred MAG amounts was to be made on or before March 31, 2021, without accrual of interest;
otherwise, must automatically be placed onto an extended payment plan. Since August 2020 through
December 2020, STILA did not make its regular monthly MAG payments to the Port. In December
2020, STILA officially notified the Port of the contract termination as of December 31, 2020. STILA
filed for Chapter 7 Bankruptcy on February 17, 2021.
The table below reflects MAG and additional per trip fees paid based on the trip counts, as reported by
STILA to the Port:
Agreement Year Additional Per Trip
(March – February) Trip Counts MAG Fees Total Rent
2017 70,861 $732,000 $131,444 $863,444
2018 69,007 $732,000 $124,028 $856,028
2019 65,348 $732,000 $109,392 $841,392
2020* 1,917 $61,000* $0** $61,000
Source: STILA Monthly Trip Counts Reports; PeopleSoft Financials, AFR Concession documents
*March 2020 – December 2020 (contract terminated December 31, 2020); STILA did not pay the required MAG for August
through December of 2020.
**March 2020 – December 2020; Additional Per Trip Fees were not incurred as trip counts did not reach the 38,000
thresholds set forth by the Lease Agreement.
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Seattle-Tacoma International Limousine Association (STILA)
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, 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 findings and conclusions
based on our engagement objectives.
The period audited was originally three Agreement Years (March 1, 2017 through February 29, 2020),
but was extended through to December 31, 2020, which was the date the Agreement was terminated.
The audit included the following audit procedures:
Concession Fees Completeness, Accuracy, and Timeliness
• Tested the Concessionaire’s billing and payments for all months in the audit period to
determine whether the MAG payments and additional per trip fees were billed and paid
accurately, completely, and timely.
• Compared the Concessionaire’s reported monthly trip counts used for Port billing against the
Port Automatic Vehicle Identification (AVI) trip counts.
• Scope Limitation - Internal Audit was unable to determine whether the Concessionaire’s
reported monthly trip counts used for Port billing of additional per trip fees were supported by
its daily activity records. (See Issue #1 for more detail.)
Surety and Insurance Compliance
• Reviewed the Concessionaire’s Rent Security Deposits for compliance with the Lease
Agreement, Port Policy (Port RE-2) and Washington State Law (RCW 53.08.085).
• Reviewed the Concessionaire’s Certificates of Insurance for compliance with the Lease
Agreement terms.
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Seattle-Tacoma International Limousine Association (STILA)
Schedule of Findings and Recommendations
1) Rating: Medium
STILA did not maintain the daily activity records, as required by the Agreement, which resulted
in a scope limitation. Accordingly, Internal Audit was unable to obtain sufficient and
appropriate audit evidence to provide reasonable assurance that the additional per trip fees,
billed solely on STILA self-reported trip counts, were accurate and complete.
The Agreement (Section 8.A.) required STILA to maintain its operational records, related to the
Agreement, for a period of at least three years beyond the end of each year’s Agreement. STILA
ceased operations in October 2020 and notified the Port that it would terminate the Agreement at the
end of December 2020. Although Internal Audit made multiple attempts to obtain daily activity reports,
STILA’s former President stated that he did not know who had reports and was no longer in
communication with the former partners nor did he know how to contact them. Therefore, Internal
Audit was unable to reconcile the reported monthly trip counts to its daily activity records for accuracy
and completeness.
As required by the Agreement (Section 7.B.), STILA submitted monthly trip count reports, which
summarized trips by limousine for each preceding month. The Port billed any additional per trip fees
based solely on those self-reported monthly trip counts. However, the Port did not review supporting
documents for the reported monthly counts. By relying on self-reported reports, without adequate
review of supporting documents, there was an increased risk that inaccurate concession fee
calculations, billing, or payments might have occurred; which would have resulted in a financial loss to
the Port.
As an additional procedure, Internal Audit compared STILA’s self-reported monthly trip counts to AVI
system trip data and noted the following:
• AVI trip count data generally shows variances with STILA reported monthly trip counts to the
Port, as it captures, not only on-call limousine service provided under STILA operations, but
also pre-arranged limousine services provided by certain independent operators that belong to
STILA. The independent operators have their own agreements/permits with the Port but utilize
the same AVI tags used for their STILA trips.
• For March 2020 through December 2020, STILA reported trip counts were less than the AVI
data (21.1% at aggregate level). This could potentially be due to STILA operators providing
more pre-arranged limousine trips. However, we were not able to verify this since STILA was
unable to provide us with any records. Airport Landside Operations indicated that they
informally use a 2% acceptable variance threshold.
• Regular monitoring and reconciliation of variances between the STILA self-reported monthly
counts and AVI trip data had not formally been established. It was noted, however, that Airport
Landside Operations has diligently collected trip activity information from STILA especially
during 2020, as some inconsistent trip activities were observed.
Recommendations:
For broader consideration for the AVI System and for Ground Transportation as a whole.
Strengthen monitoring controls by:
1. Formalize the review supporting documents; such as, daily activity records, for self-reported
monthly counts for accuracy and completeness.
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Seattle-Tacoma International Limousine Association (STILA)
2. Formalize and regularly review and reconcile variances beyond acceptable thresholds,
between self-reported monthly counts and AVI trip data.
Management Response/Action Plan:
1. Internal Audit recommends that Ground Transportation strengthen monitoring controls by
reviewing on-demand limousine records that support self-reported monthly counts.
Since STILA is no longer serving SEA, Commercial Management will revise future Port contracts
to ensure that any new on-demand limousine contract(s) will include improved operational and
accounting controls for both the Operator and the Port. This will include, but is not limited to,
monitoring and reviewing daily and monthly trip counts and ensuring accuracy.
2. Internal Audit recommends that Landside Operations formalize a regular review and reconciliation
of variances (between the self-reported monthly activity and AVI trip activity) that are beyond
acceptable thresholds.
While on the surface the variance of 21% may seem high, we believe it is rational due to the
sudden decline of STILA’s on-demand business and vehicles also being used for pre-arranged
transportation which were not included in scope of this audit. The Port will evaluate whether
allowing an operator to use the same AVI tag for two different types of operations should be
sustained in the future. Whether we used STILA’s monthly reported totals or the AVI tags, in no
case did STILA come close to the 38,000 trips that would result in additional pre-trip charges in
2020.
Ground Transportation has traditionally and consistently reviewed the variance between STILA’s
self-reported and monthly activity reports and the AVI system. In the future, we will identify an
appropriate Port of Seattle oversight partner for reconciling on-demand limousine services.
DUE DATE: N/A
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Seattle-Tacoma International Limousine Association (STILA)
2) Rating: Low
Due to a significant decrease in ridership caused by the COVID-19 Pandemic, STILA was
unable to make its Minimum Annual Guarantee (MAG) payments after the MAG deferral ended
on July 31, 2020. This resulted in approximately $157,284 owed to the Port, which will be
covered by STILA’s surety.
The Agreement (Section 7.A.) required STILA to pay a MAG equal to $732,000, in equal monthly
payments, on or before the first day of each month. In May 2020, because of declined business due to
the COVID-19 pandemic, the Port provided relief to STILA by deferring MAG payments from April
2020 through July 2020. Repayment of the deferred MAG amounts was to be made on, or before,
March 31, 2021 without the accrual of interest; otherwise, must automatically be placed onto an
extended payment plan.
After the deferral period ended, STILA did not pay the monthly MAG for August 2020 through
December 2020. As of December 31, 2020, the date the Agreement was terminated, the total MAG
amount owed to the Port is estimated to be $157,284. The Agreement (Section 11) required the Port
to refund upon the agreement termination except to the extent any amounts are drawn upon by the
Port to satisfy any obligation of Concessionaire which is overdue at the time of termination. It is likely
that the Port will be able to recover the outstanding MAG through the rent security of $184,870 that the
Port has on hand. The table below details the calculated outstanding MAG balance as of December
31, 2020:
Description Month Amount
Deferred April - July 2020 $ 51,425.73*
Delinquent August - December 2020 $ 101,410.06*
Late Fees & Interest Charges August - December 2020 $ 4,448.18
Total Due to the Port $ 157,283.97
Diff. (To be refunded to STILA) $ 27,585.88
Surety on Hand $ 184,869.85
Source: PeopleSoft Finacials, AFR outstanding balance calculation spreadsheet provided by the Aviation Property Manager.
*Adjusted based on declined enplanement passenger data for each month per the Lease Agreement Section 7.D.
In addition to the MAG, STILA was required to pay an additional per trip fee equal to four dollars per
outbound trip in excess of 38,000 trips per year. The additional per trip fee was due by the 15th of the
following month. The fees were based on STILA reported monthly trip counts and paid by STILA timely
for the three agreement years (March 1, 2017 – February 29, 2020). No additional per trip fees were
incurred from March 1, 2020 through December 31, 2020, because of the decline in passengers and
STILA not reaching the 38,000 annual trip thresholds set forth by the Agreement.
Recommendation:
As planned, in consultation with the Port’s Legal Department, seek and recover the total outstanding
balance of $157,284 (estimate), utilizing the rent security on hand.
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Seattle-Tacoma International Limousine Association (STILA)
Management Response/Action Plan:
Aviation Commercial Management staff will continue to work with the Port’s Accounting and Legal
departments to complete the closeout of the agreement and recover the outstanding balance owed to
the Port. As noted in this report, the Port currently maintains a cash security deposit in excess of the
total amount due. However, the Port was made aware that STILA has filed for Chapter 7 bankruptcy
and we are actively working with Port Legal to ensure our ability to complete the agreement close-out
process, including the application of available security, is preserved.
DUE DATE: 3/31/2021
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Seattle-Tacoma International Limousine Association (STILA)
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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