INTERNAL AUDIT
THIRD-PARTY MANAGEMENT SERVICES AGREEMENT
Bell Harbor International Conference Center / World Trade Center
AUDIT OBJETIVES AND SCOPE
BACKGROUND
FINANCIAL HIGHLIGHTS
Bell Harbor International Conference Center and the World Trade Center are public facilities
owned by the Port of Seattle. On June 1, 2012, the Port of Seattle entered into a third party
management agreement with Columbia Hospitality, Inc. (CHI) to manage operations for Bell
Harbor International Conference Center (BHICC) and the World Trade Center (WTC). The
initial term of the agreement is 10 years, expiring on May 31, 2022.
CHI receives a base management fee equal to 3.5% of gross revenues. If net operating profit
is greater than or equal to 15% of the gross revenue, CHI receives an incentive management
fee equal to 15% of the net operating profit.
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BELL HARBOR INTERNATIONAL CONFERENCE CENTER
REVENUE AND EXPENSE DESCRIPTION
2015
2016
REVENUES
$8,844,226
$6,669,867
EXPENSES (EXCLUDING BASE AND INCENTIVE MANAGEMENT FEES)
(5,535,645)
BASE MANAGEMENT FEE
(309,576)
(233,417)
INCENTIVE MANAGEMENT FEE
221,268
31,538
NET OPERATING PROFIT
$1,966,005*
$900,805*
Data Source: PeopleSoft Financials (*Includes Smith Cove Conference Center Data)
INTERNAL AUDIT
THIRD-PARTY MANAGEMENT SERVICES AGREEMENT
Bell Harbor International Conference Center / World Trade Center
AUDIT OBJETIVES AND SCOPE
FINANCIAL HIGHLIGHTS (continued)
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WORLD TRADE CENTER
REVENUE AND EXPENSE DESCRIPTION
2015
2016
REVENUES
$1,245,568
$1,297,661
EXPENSES (EXCLUDING BASE AND INCENTIVE MANAGEMENT FEES)
(873,483)
(976,478)
BASE MANAGEMENT FEE
(43,595)
(45,418)
INCENTIVE MANAGEMENT FEE
(43,204)
(34,915)
NET OPERATING PROFIT
$328,490
$275,765
Data Source: PeopleSoft Financials
INTERNAL AUDIT
THIRD-PARTY MANAGEMENT SERVICES AGREEMENT
Bell Harbor International Conference Center / World Trade Center
AUDIT OBJECTIVES AND SCOPE
The purpose of the audit was:
1. To determine whether Port management internal controls were effective to ensure:
a. Reported revenues and operating expenses were complete and accurate.
b. Expenses were appropriate and in accordance with the Agreement terms and
conditions.
c. Related party events were held in accordance with the Agreement terms and
conditions.
2. To ensure Columbia Hospitality, Inc. complied with significant terms of the Agreement.
We reviewed and analyzed records for the Audit period. For purposes of rendering our
opinion, we focused on the period January 1, 2015 through December 31, 2016.
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INTERNAL AUDIT
THIRD-PARTY MANAGEMENT SERVICES AGREEMENT
Bell Harbor International Conference Center / World Trade Center
AUDIT RESULT
AUDIT RESULT – REPORTABLE FINDING
a. Internal Controls could be improved to ensure compliance with the terms of the Agreement.
The Port overpaid payroll by approximately $26,300.
b. Related and Affiliated Party Transactions - The agreement is silent regarding the use of Port
owned facilities by CHI. We identified more than 100 CHI events, including team member
orientations, employee parties, and trainings, in which CHI held events at BHICC at a
discounted rate (68% discount). Some of these events were held at affiliate locations.
CHI generally complied with key terms in the contract.
We identified opportunities for management to strengthen monitoring controls. We also identified
an opportunity to amend the contract.
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INTERNAL AUDIT
THIRD-PARTY MANAGEMENT SERVICES AGREEMENT
The Airport Club at SEA Lounges
AUDIT OBJETIVES AND SCOPE
BACKGROUND
The Port of Seattle owns the Club at SEA lounges at the Sea-Tac airport
(formerly known as - the International and Cascade Clubs).
The Port has outsourced the day-to-day management of the Club at SEA lounges
to ALD. The services include sales and marketing, airlines services, solicitation
of new clients, and overall accounting services for both lounges.
ALD receives a base management fee of $15,208 per month, and an Incentive
Management Fee up to 6% of the Net Operating Profit.
FINANCIAL HIGHLIGHTS
Gate - A Gate - S Total
Revenue $836,468 $1,941,407 $2,777,875
Expense 349,807 861,103 1,210,910
Total Net Income $486,661 $1,080,304 $1,566,965
Source: The Club at SEA Financial Statements
NET INCOME FOR THE 12 MONTH PERIOD ENDING MARCH 31, 2016
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INTERNAL AUDIT
THIRD-PARTY MANAGEMENT SERVICES AGREEMENT
The Airport Club at SEA Lounges
AUDIT OBJECTIVES AND SCOPE
The purpose of the audit was:
1) To determine whether management controls were effective to ensure:
a)airlines usage billings/invoices (revenue) were complete and accurate
b) lounge expenses were proper and in accordance with the terms of the
agreement
2) To determine whether Airport Lounge Development Corporation (ALD) complied
with significant terms of the agreement, including the City of SeaTac Proposition-1
for minimum wage rates.
We reviewed information for the period April 1, 2015 through March 31, 2016.
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INTERNAL AUDIT
THIRD-PARTY MANAGEMENT SERVICES AGREEMENT
The Airport Club at SEA Lounges
AUDIT RESULT
Airport Development Lounge Corporation materially complied with the significant
terms of the management agreement. We; however, determined that Port management
monitoring controls can be improved. The Port overpaid compensation costs, benefits,
and payroll taxes by a net amount of $54,139. It also overpaid insurance by
approximately $4,222. In addition, we noted some instances where time card reports
were not available to support hours worked. See the Schedule of Findings and
Recommendations.
AUDIT RESULT – REPORTABLE FINDING
1. MANAGEMENT CONTROLS NEED IMPROVEMENT
a. Payroll was overpaid by $54,139
b. Lack of Support for some hours worked and charged to the Port
c. We observed the Port was charged and paid for non-required insurance. ALD allocated
$4,222 from its umbrella commercial property insurance to the Port. The Port is self-
insured for its properties and does not require commercial property insurance. Therefore,
this was unnecessary cost.
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INTERNAL AUDIT
LIMITED OPERATIONAL AUDIT
Centralized International Support Services Agreement
BACKGROUND
On December 8, 2014, the Port of Seattle entered into Agreement with VIP
Hospitality to provide passenger and baggage services in the Federal Inspection
Services (FIS) area. VIP staff assist the Customs and Border Patrol (CBP) officers
in facilitating the movement of international passengers and baggage through
FIS area.
PORT OF SEATTLE PAYMENTS TO VIP HOSPITALITY
PERIOD 2015 2016
JANUARY - MARCH $297,151 $391,481
APRIL - JUNE 411,961 646,864
JULY - SEPTEMBER 393,226 494,705
OCTOBER - DECEMBER 381,555 578,719
TOTAL $1,483,893 $2,111,769
Data Source: PeopleSoft Financials
FINANCIAL HIGHLIGHTS
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INTERNAL AUDIT
LIMITED OPERATIONAL AUDIT
Centralized International Support Services Agreement
AUDIT OBJECTIVES AND SCOPE
The purpose of the audit was:
1) To determine whether management internal controls are effective.
2) To ensure VIP complied with significant terms in the contract.
3) To ensure compliance with the City of SeaTac Proposition-1 for minimum hourly
wage rates.
We reviewed and analyzed records for the period January 2015 through February 2016.
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INTERNAL AUDIT
LIMITED OPERATIONAL AUDIT
Centralized International Support Services Agreement
AUDIT RESULT
From January 2015 to February 2016 internal controls were not operating effectively. As a
result, the Port overpaid VIP $55,000.
VIP complied with the significant terms in the contract.
VIP complied with the City of SeaTac Proposition 1 – minimum hourly wages (from December
1, 2015 through December 31, 2016.
.
AUDIT RESULT – REPORTABLE FINDING
1. INTERNAL CONTROLS WERE NOT EFFECTIVE TO ENSURE ACCURACY OF PAYMENTS
Between January 1, 2015 through February 29, 2016, VIP billed rates that were not
included in the contract. Management knowingly authorized invoiced rates that did not
agree to the terms and rates in the agreement. Although Port management reviewed and
approved the invoices, the review was not effective at preventing the overpayment. As a
result, the Port overpaid VIP by $55,000 from the period January 1, 2015 through
February 29, 2016.
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