Port of Seattle
Internal Audit Report
Lease and Concession Compliance Audit
Ivar’s Inc.
June 1, 2007 – May 31, 2010
Issue Date: October 4, 2011
Report No. 2011-19
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Internal Audit Report
Lease and Concession Compliance Audit
Ivar’s Inc.
June 1, 2007 to May 31, 2010
Table of Contents
Transmittal Letter ................................................................................................................................................................... 3
Executive Summary ............................................................................................................................................................... 4
Background.............................................................................................................................................................................. 5
Financial Highlights for the Audit Period ......................................................................................................................... 5
Audit Objectives ..................................................................................................................................................................... 5
Audit Scope and Methodology ............................................................................................................................................ 5
Conclusion ............................................................................................................................................................................... 6
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Internal Audit Report
Lease and Concession Compliance Audit
Ivar’s Inc.
June 1, 2007 to May 31, 2010
Transmittal Letter
We have completed an audit of the Lease and Concession Agreement, as amended, between the
Port of Seattle and Ivar’s Inc.
The purpose of the audit was to determine whether:
1) The revenue reported was reasonable and complete
2) Rent payments were received in a timely manner
3) The lessee complied with provisions of the lease and concession agreement
We examined information related to a three-year period from June 1, 2007 to May 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.
Ivar’s Inc. reported the concessionable revenue properly and 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
Internal Audit, Director
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Internal Audit Report
Lease and Concession Compliance Audit
Ivar’s Inc.
June 1, 2007 to May 31, 2010
Executive Summary
Audit Scope and Objective
The purpose of the audit was to determine whether:
1) The revenue reported was reasonable and complete
2) Rent payments were received in a timely manner
3) The lessee complied with provisions of the lease and concession agreement
We examined the books and records of Ivar’s Inc. for a three-year period between June 1, 2007
and May 31, 2010. Aviation Business Development has the primary responsibility for administering
and monitoring the agreement to ensure compliance with agreed-upon terms.
Agreement Terms Ivar’s Inc. is a private company that was founded on Pier 54 in Seattle in
1938. Since then, the company has expanded to include 25 fast casual Seafood Bars and three
full-service waterfront restaurants. The Seafood Bars, including the location at Sea-Tac
International Airport, serve fresh, grilled seafood entrees and salads as well as traditional favorites
such as Ivar’s famous chowders and fish n’ chips.
The current agreement with Ivar’s Inc. has been in effect since 2004. The agreement requires a
fixed monthly rent that is adjusted annually to be 85% of the total amount of the prior year’s sales.
In addition, the agreement requires a percentage fee to the extent that the percentage fee exceeds
the monthly minimum rent in accordance with the following structure:
• 12% - for receipts up to $1.2 million
• 13% - for receipts greater than $1.2 million, but less than $1.5 million
• 14% - for receipts greater than $1.5 million, but less than $2.0 million
• 15% - for receipts greater than $2.0 million
Audit Result Summary The reported concession was reasonable and complete. Other than
minor exceptions, Ivar’s Inc. materially complied with the terms of the Lease and Concession
agreement.
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Internal Audit Report
Lease and Concession Compliance Audit
Ivar’s Inc.
June 1, 2007 to May 31, 2010
Background
Ivar’s Inc. is a private company that was founded on Pier 54 in Seattle in 1938. Since then, the
company has expanded to include 25 fast casual Seafood Bars and three full-service waterfront
restaurants. The Seafood Bars, including the location at Sea-Tac International Airport, serve fresh,
grilled seafood entrees and salads as well as traditional favorites such as Ivar’s famous chowders
and fish n’ chips.
The agreement requires a fixed monthly rent that is adjusted annually to be 85% of the total
amount of the prior year’s sales. In addition, the agreement requires a percentage fee to the
extent that the percentage fee exceeds the monthly minimum rent in accordance with the following
structure:
• 12% - for receipts up to $1.2 million
• 13% - for receipts greater than $1.2 million but less than $1.5 million
• 14% - for receipts greater than $1.5 million but less than $2.0 million
• 15% - for receipts greater than $2.0 million
The agreement has the following due dates for the minimum rent and percentage fee:
• The minimum rent – advance payment on or before the first day of each month
• The percentage fee – payment on or before the 15
th
day of the following month
Financial Highlights for the Audit Period
Year
Reported Gross Revenue
Total Rent Paid
2007-08
$ 2,964,296.41
$ 397,644.46
2008-09
$ 2,848,825.91
$ 387,681.50
2009-10
$ 2,759,134.16
$ 373,025.16
Total
$ 8,572,256.48
$ 1,158,351.12
Source: PROPWorks
Audit Objectives
The purpose of the audit was to determine whether:
1) The revenue reported was reasonable and complete.
2) Rent payments were received in a timely manner.
3) The lessee complied with provisions of the lease and concession agreement.
Audit Scope and Methodology
The scope of the audit covered a three-year period between June 1, 2007 and May 31, 2010.
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Internal Audit Report
Lease and Concession Compliance Audit
Ivar’s Inc.
June 1, 2007 to May 31, 2010
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 fee and timely payment. Our
approach to the audit was risk-based from planning to test sampling. Specifically, we preformed
detailed procedures in the following areas:
1. Completeness of Reported Revenue
We met with the lessee to discuss and understand their accounting and operating
procedures. We reviewed financial records including the lessee’s state tax returns and
monthly revenue reports. In addition, we selected a week of sales and traced the revenue
through from the point of sale to the daily summary report and reconciled the sales with the
general ledger and the revenues reported to the Port.
2. Timely Submission of Rent and Percentage Fee
We reviewed the Port’s records to determine when the rent payments were received and
whether or not they were late. In the event that payments were later than the 10-day grace
period identified in the lease and concession agreement, we calculated the expected
interest and late charge and determined whether it had been assessed.
3. Compliance with Insurance Requirements
We identified the insurance coverage required by the lease and concession agreement and
determined whether the lessee had obtained sufficient coverage and submitted evidence to
the Port.
4. Compliance with Letter of Credit Requirements
We identified the letter of credit amounts required by the lease and concession agreement
and determined whether the lessee had obtained the appropriate letter of credit and
submitted evidence to the Port.
5. Compliance with Annual Reporting Requirement.
We identified the annual reports required by the lease and concession agreement and
determined whether the lessee had submitted the reports on time and in accordance with
the agreement.
Conclusion
The reported concession was reasonable and complete. Other than minor exceptions, Ivar’s Inc.
materially complied with the terms of the Lease and Concession agreement.
