Internal Audit Report
CMC Investment, Inc
DBA/Dollar Rent-A-Car
Lease and Concession Compliance Audit
January 1, 2008 through December 31, 2009
Issue Date: January 11, 2011
Report No. 2011-02
2
Internal Audit
CMC Investment, Inc
DBA/Dollar Rent A Car; Agreement No. 589
Audit Period: January 1, 2008
December 31, 2009
Table of Contents
Internal Auditor’s Report .................................................................................................. 3
Executive Summary .......................................................................................................... 4
Audit Scope ....................................................................................................................... 5
Audit Approach ................................................................................................................. 5
Conclusion ......................................................................................................................... 6
Schedule of Findings and Recommendations ................................................................ 7
1.
Underreported Gross Receipts
2.
Untimely Payments
3
Internal Audit
CMC Investment, Inc
DBA/Dollar Rent A Car; Agreement No. 589
Audit Period: January 1, 2008
December 31, 2009
Internal Auditor’s Report
We have completed an audit of the Lease and Concession Agreement, as amended, between
the Port of Seattle and CMC Investment, Inc. (DBA/Dollar Rent A Car). The purpose of the audit
was to determine whether:
1) Reported concession was complete, properly calculated, and remitted timely to the Port.
2) Port and the lessee complied with provisions of the Lease and Concession Agreement.
3) Lease and Concession Agreement, as amended, complies with applicable state and Port
requirements.
4) Customer Facility Charges (CFC) were properly collected and remitted timely to the Port.
We examined information related to a two-year period from January 1, 2008, through December
31, 2009.
We conducted our audit using due professional care. We planned and performed the audit to
obtain reasonable assurance as to compliance with significant provisions of the agreement,
including complete and timely reporting of concessionable revenues.
CMC Investment, Inc. materially complied with the terms of the Lease and Concession
agreement. However, the audit disclosed instances of late payments and underreported gross
receipts as identified in the audit report.
We extend our appreciation to the management and staff of Aviation Business Development,
and Accounting & Financial Reporting for their assistance and cooperation during the audit.
Joyce Kirangi, CPA
Director, Internal Audit
4
Internal Audit
CMC Investment, Inc
DBA/Dollar Rent A Car; Agreement No. 589
Audit Period: January 1, 2008
December 31, 2009
Executive Summary
Audit Scope and Objective The purpose of the audit was to determine the following:
1) Reported concession was complete, properly calculated, and remitted timely to the Port.
2) Port and the lessee complied with provisions of the Lease and Concession Agreement.
3) Lease and Concession Agreement, as amended, complies with applicable state and Port
requirements.
4) Customer Facility Charges (CFC) were properly collected and remitted timely to the Port.
We examined the books and records of Dollar Rent-A-Car for a two-year period from January 1,
2008 through December 31, 2009. Aviation Business Development, in conjunction with
Accounting and Financial Reporting (AFR), has the primary responsibility for administering and
monitoring the agreement to ensure compliance with agreed-upon terms.
Agreement Terms The terms of the agreement provide for a Minimum Annual Guarantee
(MAG) of 80% of the total amount paid to the Port in the previous agreement year. Additionally,
the agreement requires a Percentage Fee to be paid to the Port to the extent the fee exceeds
the MAG at 10% of gross receipts.
The following are the only agreed-upon deductions allowed in the agreement:
a. Any amounts received as insurance proceeds or for damage to vehicles or other
property, or for loss, conversion or abandonment of such vehicles.
b. The wholesale transfer of salvage vehicles.
c. Non-revenue rentals to employees.
d. Fees paid to other governmental agencies (excluding the Port).
e. Any tax imposed or collected on behalf of a taxing authority.
The MAG is payable in advance, on or before the first day of each month, without notice from
the Port. The percentage fee, if applicable, is due on or before the 15
th
of the following month.
For untimely payments, the agreement provides a one-time late fee of 5% of the overdue
amount and interest to be accrued at the rate of 18% per annum from the due date until paid.
Audit Result Summary Dollar-Rent-A-Car materially complied with the terms of the Lease
and Concession agreement. The audit; however, disclosed that the Dollar Rent-A-Car
underreported gross revenue to the Port. Additionally, we noted instances of late payments,
ranging from 1 to 24 days. The noted exceptions as a whole resulted in underreporting to the
Port, and the auditor recommends recovery of approximately $92,233 in additional concession
fees, and late fee interest
.
5
Internal Audit
CMC Investment, Inc
DBA/Dollar Rent A Car; Agreement No. 589
Audit Period: January 1, 2008
December 31, 2009
Background
Dollar Rent-A-Car is a private company located in Mercer Island, WA. The company
incorporated in 1987 and operates a number of rental facilities, including two car rental facilities
at the following locations around the airport:
1. Dollar Rent-A-Car at 19707 International Blvd, Seatac, WA.
2. Dollar Rent-A-Car at 17600 Pacific Hwy S, Seatac, WA.
The terms of the agreement provide for a Minimum Annual Guarantee (MAG) of 80% of the
total amount paid to the Port in the previous agreement year. Additionally, the agreement
requires a Percentage Fee to be paid to the extent the fee exceeds the MAG at 10% of gross
receipts.
The MAG is payable in advance, on or before the first day of each month, without notice from
the Port, and without setoff or deduction. The Percentage Fee, if applicable, is due on or before
the 15
th
of the following month.
For untimely payments, the agreement provides a one-time late fee of 5% of the overdue
amount and interest to be accrued at the rate of 18% per annum from the due date until paid.
Below are the financial highlights for the last three years:
Year
Reported
Gross Revenue
Paid
Concession
2007 $12,157,119
$1,200,905
2008 13,700,673
1,428,315
2009 15,371,427
1,504,796
Total $41,229,219
$4,134,016
Source: PROPWorks and PeopleSoft
Audit Scope
The scope of the audit covered the period of January 1, 2008 through December 31, 2009.
Audit Approach
To achieve our audit objective, we performed the following procedures:
Read and analyzed the lease agreement, as amended.
Reviewed applicable state and local rules and regulations.
Identified significant provisions in the agreement.
Obtained necessary financial and non-financial data from the lessee.
Assessed relevant risks associate with the agreement.
Designed and executed audit procedures based on risk.
6
Internal Audit
CMC Investment, Inc
DBA/Dollar Rent A Car; Agreement No. 589
Audit Period: January 1, 2008
December 31, 2009
Analyzed data (internal & external) to determine completeness & compliance. This
included performing the following additional procedures:
o Reconciliation of the reported gross receipts to the lessee’s accounting records to
ensure completeness and consistency.
o Verified that concession fees were paid timely and intact.
o Recalculated concession revenue and related fees to ensure accuracy.
o Selected the test months that deemed high risks for review.
Conclusion
Dollar Rent-A-Car materially complied with the terms of the Lease and Concession agreement.
The audit; however, disclosed that the Dollar Rent-A-Car underreported gross revenue to the
Port. Additionally, we noted instances of late payments, ranging from 1 to 24 days. The noted
exceptions as a whole resulted in underreporting to the Port, and the auditor recommends
recovery of approximately $92,233 in additional concession fees, and late fee interest
.
7
Internal Audit
CMC Investment, Inc
DBA/Dollar Rent A Car; Agreement No. 589
Audit Period: January 1, 2008
December 31, 2009
Schedule of Findings and Recommendations
1. Underreported Gross Receipts
Gross revenue is defined under Section 1.26 as:
“… all charges, including, but not limited to, time and mileage charges and
separately stated fees for rental of vehicles and other related or incidental
services or merchandise, and any other items or services, made at or from
Concessionaire’s Rental Car Concession, regardless of where the vehicles or
services are delivered to or returned…”
All gross revenues from operations are subject to concession, except for the following
agreed-upon exclusions.
a. Any amounts received as insurance proceeds or for damage to vehicles or other
property, or for loss, conversion or abandonment of such vehicles.
b. The wholesale transfer of salvage vehicles.
c. Non-revenue rentals to employees.
d. Fees paid to other governmental agencies (excluding the Port).
e. Any tax imposed or collected on behalf of a taxing authority.
We reviewed the lessee’s financial records to include monthly sales summary and noted
that the following incidental gross revenues were not reported to the Port:
Violation
Frequent flyer surcharges
Parking & storage
Express mail
Miscellaneous
The table below summarizes underreported gross revenues.
Underreported
Percentage
Fees @10%
Interest
(18%/yr)
Total
2008
38,840
3,884
1,650
5,534
2009
59,688
5,969
1,518
7,487
9
8,528
9,
85
3
3,168
13,
021
Recommendation
We recommend that Port management:
Seek and recover approximately $13,021 in underpaid concession fees and interest.
Work with Dollar rent-A-Car to ensure all receipts subject to concession are reported.
8
Internal Audit
CMC Investment, Inc
DBA/Dollar Rent A Car; Agreement No. 589
Audit Period: January 1, 2008
December 31, 2009
Management Response
2. Untimely Payments
The agreement, as amended under Section 5, stipulates specific payment terms for MAG
and percentage fee payments as follows:
MAG is payable in advance on or before the first day of each month.
Percentage fee, if applicable, is due within 20 days following the end of each month.
Late payments, as stipulated under Section 6 of the agreement, are to be assessed a one-
time late fee of 5% on the overdue amount, and interest of 18% per annum or the maximum
allowed by the law, whichever is less.
We reviewed payment history, and noted 12 and 6 instances of late payments in 2008 and
2009, respectively.
The table below summarizes Dollar Rent-A-Car untimely payments and Calculated
related late fee and interest charges
Year
Type of
Payment
Range of
Days Late
# of Instances
of Late
Payments
One-Time
Charge
@ 5%
Interest
Charge
(18%/yr)
Total
2008 MAG 1 to 11 11 50,487
770
51,257
CFC 24 1 10
2
12
2009 MAG 1 to 4 6 27,943
27,943
78,440
772
79,212
Recommendation
We recommend that Port management:
Seek and recover approximately $79,212 in one-time late charge and in
interest/finance charges.
Work with Dollar Rent-A-Car to ensure timely payments.
Management Response
CMC INVESTMENT, INC - DOLLAR RENT A CAR
SCHEDULE OF FINDINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 2008
INTEREST CALCULATED AS OF 11/30/10
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Total
Dollar Reported Gross Revenue 688,197 711,020 810,729 772,865 956,228 1,444,267 2,055,830 2,146,847 1,283,397 968,738 788,771 1,073,784 13,700,673
FINDINGS: ADD
Express Mail 47 29 13 14 73 17 134 105 18 29 62 542
Ticket 2,905 1,614 1,400 1,460 2,310 1,645 2,380 3,045 3,325 2,870 2,205 2,790 27,949
Frequent Flyer Surcharge 276 2,771 2,149 1,732 6,928
Parking & Storage 41 105 6 7 26 7 69 7 2 13 283
Miscellaneous 7 73 50 62 390 1,699 66 447 20 69 256 3,138
Total Additions 3,000 1,821 1,456 1,480 2,412 2,115 4,165 3,252 4,154 5,679 4,454 4,853 38,840
Adjusted Gross Revenue 691,197 712,841 812,185 774,345 958,640 1,446,382 2,059,994 2,150,099 1,287,551 974,417 793,225 1,078,637 13,739,513
Concession Fee Payable - 10% 69,120 71,284 81,219 77,435 95,864 144,638 205,999 215,010 128,755 97,442 79,322 107,864 1,373,951
Concession Fee Reported by CMC 68,820 71,102 81,073 77,287 95,623 144,427 205,583 214,685 128,340 96,874 78,877 107,378 1,370,067
Add'l Concession Payable 300 182 146 148 241 212 416 325 415 568 445 485 3,884
# of Month to Current 35 34 33 32 31 30 29 28 27 26 25 24
Interest
Rate Annually 18%
or 1.5% Per Month
158 93 72 71 112 95 181 137 168 221 167 175 1,650
Total Add'l Concession Payable
and Interest Payable
458 275 218 219 353 307 598 462 584 789 612 660 5,534
CMC INVESTMENT, INC - DOLLAR RENT A CAR
SCHEDULE OF FINDINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 2009
INTEREST CALCULATED AS OF 11/30/10
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Total
Dollar Reported Gross Revenue 922,703 788,014 1,001,550 1,106,610 1,213,085 1,518,624 2,035,720 2,455,229 1,540,201 1,047,447 823,986 918,285 15,371,454
FINDINGS: ADD
Express Mail 33 33
Ticket 78 1,750 3,045 2,860 3,710 4,393 5,040 3,570 2,140 3,465 30,051
Frequent Flyer Surcharge 1,733 1,499 1,821 1,987 1,997 2,116 1,991 1,965 1,995 2,217 1,720 2,044 23,084
Parking & Storage 2,030 2,730 4,760
Pickup 35 10 26 25 96
Miscellaneous 62 380 19 271 425 65 242 200 1,664
Total Additions 3,831 4,378 1,821 4,117 5,060 5,273 6,126 6,447 7,277 5,787 3,860 5,709 59,688
Adjusted Gross Revenue 926,534 792,392 1,003,371 1,110,727 1,218,145 1,523,897 2,041,846 2,461,676 1,547,478 1,053,234 827,846 923,994 15,431,142
Concession Fee Payable - 10% 92,653 79,239 100,337 111,073 121,815 152,390 204,185 246,168 154,748 105,323 82,785 92,399 1,543,114
Concession Fee Reported by CMC 92,270 78,801 100,155 110,661 121,309 151,862 203,572 245,523 154,020 104,745 82,398 91,829 1,537,145
Add'l Concession Payable 383 438 182 412 506 527 613 645 728 579 387 571 5,969
# of Months to Current 23 22 21 20 19 18 17 16 15 14 13 12
Interest Rate Annually 18%
or 1.5% Per Month 132 144 57 124 144 142 156 155 164 122 75 103 1,518
Total Add'l Concession Payable
and Interest Payable
515 582 240 535 650 670 769 799 891 700 462 674 7,488