INTERNAL AUDIT REPORT LEASE AND CONCESSION AGREEMENT AUDIT AIRPORT MANAGEMENT S ERVICES, LLC MAY 1, 2013 APRIL 30, 2016 ISSUE DATE: MARCH 24, 2017 REPORT NO. 201 ��Airport Management Services, LLC MAY 1, 2013 APRIL 30, 2016 INTERNAL AUDIT TABLE OF CONTENTS TRANSMITTAL LETTER EXECUTIVE SUMMARY BACKGROUND FINANCIAL HIGHLIGHTS AUDIT SCOPE AND METHODOLOGY CONCLUSION ��Airport Management Services, LLC MAY 1, 2013 APRIL 30, 2016 INTERNAL AUDIT TRANSMITTAL LETTER Audit Committee Port of Seattle Seattle, Washington We have completed an audit of the oncession Agreement between the Port of Seattle and Airport Management Services, LLC. We reviewed and analyzed records for the Agreement period May 1, 2013 April 30, 2016 We conducted this performance 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 of our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our fi ndings and conclusions based on our audit objectives. We extend our appreciation to Port management and staff of Airport Management Services for their assistance and cooperation during the audit. Joyce Kirangi, CPA, CGMA Internal Audit, Director AUDIT TEAM RESPONSIBLE MANAGEMENT TEAM Joyce Kirangi, Director Internal Audit Jim Schone, Director AV Business Development Roneel Prasad, Internal Auditor Rudy Caluza, Director Accounting & Financial Reporting ��Airport Management Services, LLC MAY 1, 2013 APRIL 30, 2016 INTERNAL AUDIT EXECUTIVE SUMMARY The audit objective was to determine whether 1. Port management controls were effective to ensure compliance with significant terms of the lease agreement, as amended. 2. Airport Management Services (AMS) complied with the significant terms of the lease agreement , as amended, including Gross receipt req uirements. Rent payment requirements. Independent certified gross receipt annual report requirements. Letter of credit or security requirements. Insurance requirements. or purposes of rendering our opinion, we focused on the period May 1, 2013 April 30, 2016 Aviation Business Development has the primary responsibility for administering and monitoring the agreement to ensure compliance with agreed upon terms. Accounting & Financial Reporting (AFR) department administers billing, ollection and accounting of revenue generated from this lease agreement. Details of our audit’s scope and methodology are on page five Airport Management Services, LLC, (AMS) operates retail concessions at the SeaTac International airport. Their retail operations provide wide range of goods and services to the airport customers. There were 22 different concession units leased under this lease. As of May 2014, two (2) units were closed and on April 1, 2016 nine (9) units were incorporated into a new lease agreement with the Port. A ll these chan ges were mutually agreed among all the parties involved. The agreement requires to remit to the Port rent payments as follows : minimum annual guarantee (MAG) or percentages fee to the extent it is greater than MAG. Port anagement controls over the Airport Management Services c oncession greement were effective to ensure compliance with the significant terms of the lease agreement . Airport Management Services complied with the significant terms of the agreement BACKGROUND AUDIT OBJECTIVES AND SCOPE AUDIT RESULT ��Airport Management Services, LLC MAY 1, 2013 APRIL 30, 2016 INTERNAL AUDIT Airport Management Services, LLC, (AMS) operates retail concessions at the SeaTac International airport. Their retail operations provide wide range of goods and services to the airport customers. There were 22 different concession units leased under this lease. As of May 2014 two (2) units were closed and on April 1, 2016 nine (9) units were incorporated into a new lease agreement with the Port. All these chan ges were mutually agreed among all the parties involved. The agreement requires to remit to the Port rent payments as follows : minimum annual guarantee (MAG) or percentages fee to the extent it is greater than MAG. REPORTED GROSS RECEIPTS AND CONCESSION CALCULATION AGREEMENT YEAR REPORTED GROSS RECEIPTS/ REVENUES CONCESSION FEE PAID May 1, 2013 April 30, 2014 49,477,086 7,603,995 May 1, 2014 April 30, 2015 52,411,697 8,120,180 May 1, 2015 April 30, 2016 53, 105 596 8,18 914 TOTAL $154,9 379 $23,90 Data Source: PeopleSoft and Propworks We reviewed information for the period May 1, 2013 April 30, 2016. The audit was conducted utilizing risk based approach from planning to testing. We gathered information through research, interviews, observations, and analytical review, in order to obtain a complete understanding of concession agreement terms and conditions . We applied audit procedures to areas with the highest likelihood of signi ficant negative impact as follows 1. To determine whether Port management controls were effective to ensure compliance with the significant terms of the lease agreement, we: Identified and tested management controls which ensure compliance. 2. To determine whether AMS complied with significant terms of the Agreement , we performed the following: BACKGRO UND FINANCIAL HIGHLIGHTS UDIT SCOPE AND ETHODOLOGY ��Airport Management Services, LLC MAY 1, 2013 APRIL 30, 2016 INTERNAL AUDIT a. Reported gross receipts were complete and concession fees were properly calculated Reviewed the lessee’s chart of accounts to determine whether all revenue accounts were included in the determination of concession revenue receipts reported to the Port. Obtained and analyzed detailed accounting information in cluding detailed and daily sa le reports by sales category and store locations to verify th at recorded sales were accurate and complete. Reconciled the reported revenues to lessee’s d aily ale eport . Verified that r eported retail display allowances (RDA) were complete and properly included in the gros s receipts reported to the Port. Reconciled reported revenue for RDA to lessee’s accounting records to determine all RDA accounts were reported as required Rent p ayments (MAG/Concession fee) as required were timely remitted. Identified payment due dates. Analyzed p ort records to determine the timeline ss of submitted f ee payments. Tested a sample of 38 payments for timely remittance. Independent certified gross receipt annual report provided to the Port as required in the agreement. Identified the annual report requirements in the agreement. Verified by testing three (3) annual report were provided timely to the Port. Letter of credit or other security as required was maintained. Identified the Letter of credit or other security requirements in the agreement. Verified by testing three (3) years rent security amount as required were maintained. Insurance as required was main tained. Identified the insurance require ments of the agreement . Verified insurance certificates as required in the agreement were provided to the Port during the audit period. Verified by testing three (3) years insurance coverages as required were maintained . Port management controls over the Airport Management Services c oncession greement were effective to ensure compliance with the significant terms of the lease agreement . Airport Management Services complied with the significant terms of the agreement , as amended. CONCLUSION