INTERNAL AUDIT REPORT
LIMITED CONTRACT COMPLIANCE
BEECHER’S HANDMADE CHEESE
JANUARY 2014 – DECEMBER 2017
ISSUE DATE: May 3, 2018
REPORT NO. 2018-01
Beecher’s Handmade Cheese
January 2014 – December 2017
2
TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................................................................................................................................. 3
BACKGROUND .............................................................................................................................................................. 4
AUDIT SCOPE AND METHODOLOGY ........................................................................................................................... 5
SCHEDULE OF FINDINGS AND RECOMMENDATIONS............................................................................................... 6
APPENDIX A: RISK RATINGS ........................................................................................................................................ 7
INTERNAL AUDIT
Beecher’s Handmade Cheese
January 2014 – December 2017
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EXECUTIVE SUMMARY
Internal Audit (IA) completed an audit of the Lease and Concession Agreement (Agreement) between
Beecher’s Handmade Cheese (Beecher’s) and the Port of Seattle (Port) for the period January 1, 2014
through December 31, 2017. The audit was performed to verify compliance with key terms in the
Agreement, including the completeness and accuracy of concession fees paid to the Port.
The original Agreement between Beecher’s and the Port was executed April 3, 2012, for the right to
operate a food and beverage concession at the Airport. The Agreement required the Lessee to pay the
Port a Minimum Annual Guarantee (MAG) equal to eighty-five percent (85%) of the total amount paid by
the Lessee for the previous year.
We concluded that surety and street pricing requirements were achieved. However, we identified one
medium rated issue, related to assessing the accuracy of revenue. This issue is discussed in more detail
on page six.
1) The Agreement requires the Lessee, in part, to maintain records for a period of three years. However,
the daily point of sale data was not provided to Internal Audit in its original format; rather, an excel
document was provided. Cash register z-tapes, in their original format, are necessary to obtain
reasonable assurance to conclude on the accuracy of concession revenue.
We extend our appreciation to Port management and staff of the Aviation Commercial Management
Department for their assistance and cooperation during the audit.
Glenn Fernandes, CPA
Director, Internal Audit
RESPONSIBLE MANAGEMENT TEAM
Lance Lyttle, Managing Director Aviation
Jim Schone, Director, Aviation Commercial Management
Dawn Hunter, Senior Manager, Airport Dining and Retail
Khalia Moore, Senior Business Manager, Airport Dining and Retail
Beecher’s Handmade Cheese
January 2014 – December 2017
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Beecher’s Handmade Cheese (Beecher’s) is headquartered in Seattle and operates four cafés offering an
assortment of fresh sandwiches, soups, salads, and cheeses. Beecher’s has three locations in the Seattle
area and one location in New York.
The original Agreement between Beecher’s and the Port was executed April 3, 2012 for the right to
operate a food and beverage concession at the Airport. The Agreement required the Lessee to pay the
Port a Minimum Annual Guarantee (MAG) equal to eighty-five percent (85%) of the total amount paid by
the Lessee for the previous year.
In addition to the MAG, the Agreement required the Lessee to pay a twelve percent (12%) concession
fee, to the extent the percentage fee was higher than the monthly MAG payment. Beecher’s is required to
provide the Port with detailed statements of gross sales for the preceding month and a certified annual
statement, of monthly gross sales, at the end of each year. The concession revenues from Beecher’s
have consistently exceeded the MAG.
The table below reflects the total concession revenue earned by the Port through the audit period.
BEECHER'S HANDMADE CHEESE
Year
Gross Sales
Concession Revenue
$3,712,924
$445,551
4,461,175
535,341
5,748,587
689,831
6,903,741
828,449
TOTAL
$20,826,427
$2,499,172
*
Data Source: PROPworks
The agreement also states that, at the Airport, the Lessee shall not charge prices for any menu items,
products or services that exceed “Street Prices”. Street prices are prices charged by companies with the
same trade name, commonly recognized by the public.
BACKGROUND
Beecher’s Handmade Cheese
January 2014 – December 2017
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We conducted this audit in accordance with Generally Accepted Government Auditing Standards
and the International Standards for the Professional Practice of Internal Auditing. Those standards
require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and conclusions based on our
audit objectives.
The period audited was January 2014 – December 2017. After identifying significant provisions in
the Agreement, we performed the following audit procedures:
Revenue Completeness and Accuracy
• Daily sales detail (z-tapes) were not available for most of the audit timeframe, accordingly,
when not available, we agreed the provided Excel spreadsheet to the monthly profit and loss
sales report, and to the general ledger.
• Agreed recalculated concession fees to amounts reported to the Port.
• Verified the accuracy of the concession fee by agreeing the percentage rate applied to the
revenue category and agreeing to the fees invoiced.
• Obtained and reviewed documentation supporting the tenant’s annual certification of gross
sales.
• Agreed provided sales data to monthly bank statements. Certain information on Beecher’s
bank statements was redacted, thereby preventing us from obtaining sufficient assurance
from this procedure.
Surety Deposit
• Recalculated annual surety deposits per the lease agreement.
• Validated that surety deposits were received timely, at the beginning of each lease year.
Street Pricing
• Obtained 2017 street pricing documentation.
• Discussed street pricing analysis with the Airport Dining and Retail department.
• Agreed airport prices to the Pike Place Market location to verify ‘street pricing’ compliance.
AUDIT SCOPE AND METHODOLOGY
Beecher’s Handmade Cheese
January 2014 – December 2017
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SCHEDULE OF FINDINGS AND RECOMMENDATIONS
The Agreement requires the Lessee, in part, to maintain records for a period of three years.
However, the daily point of sale data was not provided to Internal Audit in its original format;
rather, an excel document was provided. Cash register z-tapes, in their original format, are
necessary to obtain reasonable assurance to conclude on the accuracy of concession revenue.
In the fourth quarter of 2017, Beecher’s implemented a new point of sale system. Subsequent to the
implementation, Beecher’s did maintain original sales data. This allowed Internal Audit to successfully
perform revenue validation procedures for the month of November 2017. This additional step provided us
with reasonable assurance that revenue was accurately reported for the fourth quarter of 2017.
For the period prior to implementation, Beecher’s did not retain the original receipt data to evidence their
daily sales. Excel reports that display information, although unlikely, can be manipulated or can
inadvertently remove data, thus compromising the completeness and accuracy of the report. Therefore,
relying on reports that capture information downloaded from another source does not provide the same
level of assurance as does obtaining source data in its original form.
Section 7.1 of the Agreement also reflects that the Lessee will establish and maintain an accounting
system, including all books of accounts and records, that are “reasonably satisfactory to the Port for the
determination of any Rent or other computations, or both, which may be necessary or essential in
carrying out the terms of this Agreement…for a period of at least three (3) years.”
This position is also consistent with the Internal Revenue Service record retention guidance, which
requires cash register z-tapes and detailed x-tapes to perform their examinations.
Recommendation
Incorporate specific language into future Agreements that explicitly requires the original daily cash
register data (z-tapes or x-tapes).
ADR management also suggested they would proactively communicate with Beecher’s, and more
broadly, all airport concessionaire’s, the importance of maintaining original source data.
Management Response/Action
Due to unusual circumstances, Beecher’s was unable to provide original documentation to support their
reported sales. While the documentation was not in its original format as required, Beecher’s did go to
extensive measures to provide backup documentation to support the numbers provided to the Port.
Additionally, there were no major discrepancies between what was submitted in previous years and what
was able to be verified by the Port. Airport Dining and Retail staff has communicated with Beecher’s
senior management about the requirement in their lease to provide sales documentation in its original
format and have requested that they provide that documentation along with their 2018 certified annual
sales report.
DUE DATE: 12/31/2018
1) RATING: MEDIUM
Beecher’s Handmade Cheese
January 2014 – December 2017
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APPENDIX A: RISK RATINGS
Findings identified during the course of the audit are assigned a risk rating, as outlined in the table below. The
risk rating is based on the financial, operational, compliance or reputational impact the issue identified has on
the Port. Items deemed “Low Risk” will be considered “Exit Items” and will not be brought to the final report.
Rating Financial Internal Controls Compliance Public
Port Commission/
Management
HIGH
Large financial
impact
Remiss in
responsibilities
of being a
custodian of
public trust
Missing, or inadequate
key internal controls
Noncompliance
with applicable
Federal, State,
and Local Laws,
or Port Policies
High probability
for external audit
issues and/or
negative public
perception
Important
Requires immediate
attention
MEDIUM
Moderate
financial impact
Partial controls
Not adequate to identify
noncompliance or
misappropriation timely
Inconsistent
compliance with
Federal, State,
and Local Laws,
or Port Policies
Potential for
external audit
issues and/or
negative public
perception
Relatively important
May or may not
require immediate
attention
LOW/
Exit Items
Low financial
impact
Internal controls in place
but not consistently
efficient or effective
Implementing/enhancing
controls could prevent
future problems
Generally
complies with
Federal, State and
Local Laws or Port
Policies, but some
minor
discrepancies
exist
Low probability
for external audit
issues and/or
negative public
perception
Lower significance
May not require
immediate attention
Efficiency
Opportunity
An efficiency opportunity is where controls are functioning as intended; however, a modification would make
the process more efficient