Internal Audit Report

Bill & Nick, Inc.

d/b/a Bay Cafe

Lease and Concession Compliance Audit

January 1, 2009 to December 31, 2010

Issue Date: September 07, 2011

Report No. 2011-17

Internal Audit

Bill & Nick, Inc.

d/b/a Bay Cafe

Table of Contents

Transmittal Letter .............................................................................................................. 3

Executive Summary .......................................................................................................... 4

Background ....................................................................................................................... 5

Audit Objective .................................................................................................................. 5

Audit Scope and Methodology ......................................................................................... 5

Conclusion ......................................................................................................................... 6

Internal Audit

Bill & Nick, Inc.

d/b/a Bay Cafe

Transmittal Letter

We have completed an audit of the Lease and Concession Agreement, as amended, between

the Port of Seattle and Bill & Nick, Inc., d/b/a Bay Café.

The purpose of the audit was to determine whether:

1) Reported concession was complete and properly calculated.

2) The lessee complied with provisions of the Lease and Concession Agreement.

We examined information related to a two-year period from January 1, 2009, through December

31, 2010.

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.

Bill & Nick, Inc. reported concession properly and complied materially with the terms of the

Lease and Concession agreement

We extend our appreciation to Portfolio Management in Real Estate Division and to Accounting

& Financial Reporting for their assistance and cooperation during the audit.

Thank you.

Joyce Kirangi, CPA

Director, Internal Audit

Internal Audit

Bill & Nick, Inc.

d/b/a Bay Cafe

Executive Summary

Audit Scope and Objective The purpose of the audit was to determine the following:

1) Reported concession was complete and properly calculated.

2) The lessee complied with provisions of the Lease and Concession Agreement.

We examined the books and records of Bill and Nick, LLC for a two-year period from January 1,

2009 through December 31, 2010. Portfolio Management in Real Estate Division 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 Bill & Nick, Inc. (d/b/a Bay Café) is a private company that has operated a

diner on Fisherman’s Terminal since 1987. Based in Seattle, Washington, this establishment

has been serving visiting and local patrons food items, beverage items, and other business

related services just feet from the wharf.

The current agreement with Bill & Nick, Inc. at the Fisherman’s Terminal location has been in

effect since 1987. The agreement requires a fixed monthly minimum rent to be adjusted

annually based on a 3 prior year average. In addition, the agreement requires a percentage fee

of 6%, provided the fee exceeds the fixed monthly minimum rent.

Audit Result Summary Reported concession was complete and properly calculated. In

addition, other than minor exceptions, Bill & Nick, Inc. complied materially with the terms of the

Lease and Concession agreement

Internal Audit

Bill & Nick, Inc.

d/b/a Bay Cafe

Background

Bill & Nick, Inc. (d/b/a Bay Café) is a private company that has operated a diner on Fisherman’s

Terminal since 1987. Based in Seattle, Washington, this establishment has been serving visiting

and local patrons food items, beverage items, and other business related services just feet from

the wharf.

The agreement requires a fixed monthly minimum rent to be adjusted annually based on a 3

prior year average. In addition, the agreement requires a percentage fee of 6%, provided the fee

exceeds the fixed monthly minimum rent.

The agreement has the following due dates for the minimum and percentage rent:

• the minimum rent - advance payment on or before the first day of each calendar month

• the percentage rent - within thirty days after each calendar month

Financial Highlights for the Audit Period

Year

Reported

Gross Revenue

Total Rent Paid

2009

$766,313

45,978.80

2010

$795,754

47,745.22

Source: PROPWorks and PeopleSoft

Audit Objective

The purpose of the audit was to determine the following:

3) Reported concession was complete and properly calculated.

4) The lessee complied with provisions of the Lease and Concession Agreement.

The scope of the audit covered a two-year period from January 1, 2009 to December 31, 2010.

Audit Scope and Methodology

We conducted the audit to determine whether the lessee was in compliance with the terms of

the lease agreement including, but not limited to, the percentage rental. Our approach to the

audit was risk-based from planning to test sampling. We applied additional detailed audit

procedures to areas with the highest likelihood of significant negative impact as follows:

•

Concession

•

CPA Certified Annual Report

•

Insurance

•

Annual Rent Adjustment

Internal Audit

Bill & Nick, Inc.

d/b/a Bay Cafe

a. Concession

We met with the lessee to discuss and understand lessee revenue accounting and operating

procedures. We reviewed the lessee’s financial records including state Business Occupation

(B&O) tax returns for the audit period to determine if reported gross revenues were

complete. Additionally, we selected two highest gross months in the audit period and

reconciled the sales to daily sales journals and bank statements.

b. CPA Certified Annual Report

We reviewed CPA reports for the audit period to determine compliance with the timely and

complete submission of the report.

c. Insurance

To determine compliance with insurance requirements, we reconciled insurance

requirements to the coverage reflected in the certificate of insurance in force for the audit

period.

d. Annual Rent Adjustment

We reviewed and recalculated annual rent adjustments for the audit period to determine if

the rent was properly and accurately adjusted.

Conclusion

Reported concession was complete and properly calculated. In addition, other than minor

exceptions, Bill & Nick, Inc. complied materially with the terms of the Lease and Concession

agreement