Internal Audit Report
Ex Officio LLC
Lease and Concession Compliance Audit
June 1, 2008 through May 31, 2011
Issue Date: October 04, 2011
Report No. 2011-20
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Internal Audit
Lease and Concession Compliance Audit
Ex Officio LLC
June 1, 2008 – May 31, 2011
Table of Contents
Transmittal Letter .............................................................................................................. 3
Executive Summary .......................................................................................................... 4
Background ....................................................................................................................... 5
Audit Objective .................................................................................................................. 5
Audit Scope and Methodology ......................................................................................... 6
Conclusion ......................................................................................................................... 6
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Internal Audit
Lease and Concession Compliance Audit
Ex Officio LLC
June 1, 2008 – May 31, 2011
Transmittal Letter
We have completed an audit of the Lease and Concession Agreement between the Port of
Seattle and Ex Officio LLC. The purpose of the audit was to determine whether:
1) Reported concession was complete, properly calculated, and remitted timely to the Port.
2) The lessee complied with significant provisions of the Lease and Concession Agreement.
We examined information related to a three-year period from June 1, 2008, through May 31,
2011.
We conducted the 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.
Ex Officio LLC materially complied with the terms of the Lease and Concession agreement.
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
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Internal Audit
Lease and Concession Compliance Audit
Ex Officio LLC
June 1, 2008 – May 31, 2011
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) The lessee complied with significant provisions of the Lease and Concession Agreement.
We examined the books and records of Ex Officio for a three-year period from June 1, 2008
through May 31, 2011. 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 85% of the total amount paid to the Port in the previous agreement year, provided that
the MAG is not less than $120,000. Additionally, the agreement requires a Percentage Fee
equal to 12 to 14 percent of gross revenues if the fee is higher than the monthly MAG payment.
The following are the only agreed-upon deductions allowed in the agreement:
a. Tax imposed or collected on behalf of a taxing authority
b. Discounts actually granted
c. Refunds due to unsatisfactory or unacceptable goods or services
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 for a one-time late charge 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 Ex Officio materially complied with the terms of the Lease and
Concession agreement. However, the audit disclosed minor instances of gross revenue
deductions and late payments, thereby reducing concession fees slightly.
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Internal Audit
Lease and Concession Compliance Audit
Ex Officio LLC
June 1, 2008 – May 31, 2011
Background
Ex Officio is an outdoor and travel clothing company founded in 1986 in Seattle, Washington as
De Sar, Inc. In April 2007, the company was acquired by Jarden, a leading provider of niche
consumer products used in and around the home.
Ex Officio has been operating at Sea-Tac Airport since 2005 and is currently located at Central
Terminal in the airport.
The terms of the agreement provide for a Minimum Annual Guarantee (MAG) of 85% of the total
amount paid or payable to the Port in the previous agreement year, provided it is not less than
$120,000. Additionally, the agreement requires a Percentage Fee of 12% to 14% of gross
revenues to the extent that the fee is higher than the monthly MAG.
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 for a one-time late charge 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 fiscal years:
Fiscal
Year
Reported
Gross Revenue
Paid
Concession
2008-2009
$ 2,021,625
$ 242,269
2009-2010
1,991,847
239,022
2010-2011
2,355,361
289,751
Total
$ 6,368,833
$ 771,042
Source: PROPWorks and PeopleSoft
Audit 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) The lessee complied with significant provisions of the Lease and Concession Agreement.
The scope of the audit covered the period of June 1, 2008, through May 31, 2011.
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Internal Audit
Lease and Concession Compliance Audit
Ex Officio LLC
June 1, 2008 – May 31, 2011
Audit Scope and Methodology
We conducted the audit to determine whether the lessee was in compliance with the lease
agreement terms including, but not limited to, monthly rent and concession payments. 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:
•
Timely Payment
•
Certified Annual Revenue Report
•
Insurance Requirements
•
Concession revenue and payment
a. Timely Payment
We reviewed payment records to determine whether the lessee complied with the required
due dates.
b. Insurance Requirements
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.
c. Certified Annual Revenue Report
We reviewed certified reports for the audit period to determine compliance with the timely
and complete submission of the report.
d. Concession Revenue and Payment
To determine whether the lessee completely and accurately reported all revenues subject to
concession, we obtained a complete set of the lessee’s Point-of-Sale (POS) data for the
audit period. We analyzed the data to ensure that all transactions were recorded properly
and reconcile to the lessee’s accounting records, as well as to the reported concession
revenues to the Port. Additionally, we recalculated concession and Minimum Annual
Guarantee (MAG) payments, based on audited concession revenues, to ensure billing
accuracy.
Conclusion
Ex Officio materially complied with the terms of the Lease and Concession agreement.
However, the audit disclosed minor instances of gross revenue deductions and late payments,
thereby reducing concession fees slightly.
