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 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 2 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 3 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 15th 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. 4 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 15th 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 2007 2008 2009 Total Reported Gross Revenue $12,157,119 13,700,673 15,371,427 $41,229,219 Paid Concession $1,200,905 1,428,315 1,504,796 $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. 5 • 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. 6 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 2008 2009 Percentage Fees @10% 38,840 3,884 59,688 5,969 98,528 9,853 Interest (18%/yr) 1,650 1,518 3,168 Total 5,534 7,487 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. 7 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 onetime 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 2008 2009 Type of Payment MAG CFC MAG Range of Days Late 1 to 11 24 1 to 4 # of Instances of Late Payments 11 1 6 One-Time Charge @ 5% 50,487 10 27,943 78,440 Interest Charge (18%/yr) 770 2 772 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 8 Total 51,257 12 27,943 79,212 93 275 458 34 71,284 71,102 182 158 35 # of Month to Current Interest Rate Annually 18% or 1.5% Per Month Total Add'l Concession Payable and Interest Payable 69,120 68,820 300 691,197 Adjusted Gross Revenue Concession Fee Payable - 10% Concession Fee Reported by CMC Add'l Concession Payable 105 73 1,821 41 7 3,000 712,841 29 1,614 Feb-08 711,020 47 2,905 Jan-08 688,197 FINDINGS: ADD Express Mail Ticket Frequent Flyer Surcharge Parking & Storage Miscellaneous Total Additions Dollar Reported Gross Revenue CMC INVESTMENT, INC - DOLLAR RENT A CAR SCHEDULE OF FINDINGS FOR THE TWELVE MONTHS ENDED DECEMBER 2008 INTEREST CALCULATED AS OF 11/30/10 218 72 33 81,219 81,073 146 812,185 6 50 1,456 1,400 Mar-08 810,729 219 71 32 77,435 77,287 148 774,345 1,480 7 13 1,460 Apr-08 772,865 353 112 31 95,864 95,623 241 958,640 26 62 2,412 14 2,310 May-08 956,228 307 95 30 144,638 144,427 212 1,446,382 7 390 2,115 73 1,645 Jun-08 1,444,267 598 181 29 205,999 205,583 416 2,059,994 69 1,699 4,165 17 2,380 Jul-08 2,055,830 462 137 28 215,010 214,685 325 2,150,099 7 66 3,252 134 3,045 Aug-08 2,146,847 584 168 27 128,755 128,340 415 1,287,551 447 4,154 105 3,325 276 Sep-08 1,283,397 789 221 26 97,442 96,874 568 974,417 20 5,679 18 2,870 2,771 Oct-08 968,738 612 167 25 79,322 78,877 445 793,225 29 2,205 2,149 2 69 4,454 Nov-08 788,771 660 175 24 107,864 107,378 485 1,078,637 62 2,790 1,732 13 256 4,853 Dec-08 1,073,784 5,534 1,650 1,373,951 1,370,067 3,884 13,739,513 542 27,949 6,928 283 3,138 38,840 Total 13,700,673 3,831 926,534 Adjusted Gross Revenue Total Add'l Concession Payable and Interest Payable 515 132 23 # of Months to Current Interest Rate Annually 18% or 1.5% Per Month 92,653 92,270 383 Concession Fee Payable - 10% Concession Fee Reported by CMC Add'l Concession Payable 1,733 2,030 35 33 Jan-09 922,703 FINDINGS: ADD Express Mail Ticket Frequent Flyer Surcharge Parking & Storage Pickup Miscellaneous Total Additions Dollar Reported Gross Revenue 582 144 22 79,239 78,801 438 792,392 78 1,499 2,730 10 62 4,378 Feb-09 788,014 CMC INVESTMENT, INC - DOLLAR RENT A CAR SCHEDULE OF FINDINGS FOR THE TWELVE MONTHS ENDED DECEMBER 2009 INTEREST CALCULATED AS OF 11/30/10 240 57 21 100,337 100,155 182 1,003,371 1,821 1,821 Mar-09 1,001,550 535 124 20 111,073 110,661 412 650 144 19 121,815 121,309 506 1,218,145 19 5,060 380 4,117 1,110,727 3,045 1,997 May-09 1,213,085 1,750 1,987 Apr-09 1,106,610 670 142 18 152,390 151,862 527 769 156 17 204,185 203,572 613 2,041,846 425 6,126 26 271 5,273 1,523,897 3,710 1,991 Jul-09 2,035,720 2,860 2,116 Jun-09 1,518,624 799 155 16 246,168 245,523 645 2,461,676 25 65 6,447 4,393 1,965 Aug-09 2,455,229 891 164 15 154,748 154,020 728 1,547,478 242 7,277 5,040 1,995 Sep-09 1,540,201 700 122 14 105,323 104,745 579 1,053,234 5,787 3,570 2,217 Oct-09 1,047,447 462 75 13 82,785 82,398 387 827,846 3,860 2,140 1,720 Nov-09 823,986 674 103 12 92,399 91,829 571 923,994 200 5,709 3,465 2,044 Dec-09 918,285 7,488 1,518 1,543,114 1,537,145 5,969 15,431,142 33 30,051 23,084 4,760 96 1,664 59,688 Total 15,371,454