INTERNAL AUDIT REPORT
LIMITED CONTRACT COMPLIANCE
FOX RENT-A-CAR, INC.
JUNE 2014 – MAY 2017
ISSUE DATE: AUGUST 7, 2018
REPORT NO. 2018-07
FOX Rent-A-Car, Inc.
June 2014 – May 2017
INTERNAL AUDIT
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TABLE OF CONTENTS
EXECUTIVE SUMMARY .......................................................................................................................................... 3
BACKGROUND ....................................................................................................................................................... 4
AUDIT SCOPE AND METHODOLOGY ...................................................................................................................... 5
SCHEDULE OF FINDINGS AND RECOMMENDATIONS .......................................................................................... 6
APPENDIX A: RISK RATINGS.................................................................................................................................. 8
FOX Rent-A-Car, Inc.
June 2014 – May 2017
INTERNAL AUDIT
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EXECUTIVE SUMMARY
Internal Audit (IA) completed an audit of the Lease Agreement between FOX Rent-A-Car, INC. (FOX /
Operator) and the Port of Seattle (Port) for the period June 1, 2014 through May 31, 2017. The audit
objective was to determine whether the Operator complied with significant financial provisions of the
Agreement, including whether reported gross revenues and the Customer Facility Charges (CFC) paid to
the Port were complete and reasonable.
We determined that the Operator underreported certain gross revenue items and the CFC.
1) FOX did not report $521,500 in incidental gross revenue, resulting in approximately $52,150 in
additional Percentage Fees owed to the Port.
2) The Lease Agreement requires the Operator to remit the full amount of the CFC regardless of
whether or not the full amount is actually collected. In certain instances, FOX did not charge the
CFC and as a result, did not remit $10,578 to the Port.
The two items resulted in an underpayment to the Port of approximately $63,000 for the three-year
period ending May 31, 2017. These issues are discussed in more detail beginning on page six and seven
of this report.
We extend our appreciation to management and staff of the Aviation Commercial Management
Department, the Operator, and the Accounting and Financial Reporting 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 AV Commercial Management
Jason Johnson, Aviation Property Manager 3
FOX Rent-A-Car, Inc.
June 2014 – May 2017
INTERNAL AUDIT
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Fox Rent-A-Car, Inc. (FOX) is a California corporation that provides automobile rental services. The
company operates in 20 locations throughout the Western United States, including California,
Washington, Utah, Nevada, and Arizona.
In July 2008, the Port entered into a Consolidate Rental Car Facility Lease Agreement (Agreement) with
FOX. The terms of the Agreement provide for a Minimum Annual Guarantee (MAG) of the higher of: (1)
85% of the total amount paid to the Port in the previous Agreement year, or (2) the Initial MAG, bid by the
Operator, of $501,000. Additionally, the Agreement requires a Percentage Fee equal to 10% of the
Operator’s gross revenues, provided 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.
The Percentage Fee, if applicable, is due on or before the 20
th
of the following month.
The Agreement states that the Operator must collect a Customer Facility Charge (CFC) of $6 per rental
day.
The table below reflects total gross revenue, percentage fees, and CFC fees:
Data Source: PeopleSoft Financials and Propworks
REPORTED GROSS REVENUE / PERCENTAGE FEES / CFC FEES
AGREEMENT YEAR
REPORTED GROSS
REVENUES
CONCESSION
FEES
REPORTED CFC FEES
2014-2015 $10,014,977 $1,001,498 $1,428,216
2015-2016 11,289,695 1,128,970 1,589,052
2016-2017 11,661,478 1,166,148 1,443,594
TOTAL $32,966,150 $3,296,616 $4,460,862
BACKGROUND
FOX Rent-A-Car, Inc.
June 2014 – May 2017
INTERNAL AUDIT
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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 June 2014 through May 2017. After identifying significant provisions in the
Agreement, we performed audit procedures that included:
Revenue Completeness and Accuracy
• Traced concession payments to Port records to verify payments were received by Agreement
dates.
• Agreed revenue reported to the Port, to the Operator’s general ledger, revenue reports, and to
FOX audited schedules.
Customer Facility Charge
• Agreed Operator’s audited CFC counts to database records.
• Reviewed checkout and return date records to assess the reasonableness of daily transactions.
Insurance and Rent Security
• Determined whether commercial general liability insurance and rent security met Agreement
requirements.
AUDIT SCOPE AND METHODOLOGY
FOX Rent-A-Car, Inc.
June 2014 – May 2017
INTERNAL AUDIT
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SCHEDULE OF FINDINGS AND RECOMMENDATIONS
FOX did not report $521,500 in incidental gross revenue, resulting in approximately $52,150 in additional
Percentage Fees owed to the Port.
Our analysis of the Operator’s financial records and testing of transactions identified the following items
that were not included in Gross Revenues when reported to the Port:
• Time and Mileage Fees
• Customer / Business Rebates
• Detailing Fee
• Energy Recovery Fee
• Early Charge
The Operator has acknowledged these items. The underreported revenue is reflected in the table below.
Data Source: PeopleSoft Financials, Propworks, FOX records
Recommendations:
1. Seek and recover $52,150 in underpaid Percentage Fees.
2. Assess the applicability of a one-time late charge and any accrued interest.
3. Communicate with the Operator, to assure that future reported Gross Revenues include the items
listed above.
Management Response / Action Plan
Aviation Commercial Management will seek to recover the underpaid Percentage Fees, together with any
applicable late fees and interest charges. Aviation Commercial Management will also communicate both
verbally and in writing that the revenues identified above, are not permitted exclusions from revenue
according to the Agreement. Therefore, effectively immediately, those revenue items are required to be
included in their monthly reports of gross revenues provided to the Port. Revised reports that include
these excluded gross revenues, as well as payment of any additional Percentage Fees, will be requested
for those months that have transpired since the end of the audit period.
ADDITIONAL PERCENTAGE FEE DUE TO THE PORT
AGREEMENT YEAR
REPORTED
AUDITED DIFFERENCE
2014-2015 $10,014,977 $10,182,508 $167,531
2015-2016 11,289,695 11,469,324 179,629
2016-2017 11,661,478 11,835,818 174,340
Concession Revenue Underreported
$521,500
Concession Fee Due
$52,150
1) RATING: MEDIUM
Fox Rent-A-Car, Inc.
June 2014 – May 2017
INTERNAL AUDIT
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The Agreement requires the Operator to remit the full amount of the CFC regardless of whether or not the
full amount is actually collected. In certain instances, FOX did not charge the CFC and as a result, did not
remit $10,578 to the Port.
The lease Agreement under Section 6.2.1 stipulates:
“Each Operator must collect the Customer Facility Charge at the time the first payment is made for a
qualifying vehicle rental transaction, and must remit the full amount of the Customer Facility Charge to
the Port regardless of whether or not the full amount of such Customer Facility Charge is actually
collected by the Operator from the person who rented the automobile.”
The Operator acknowledged the differences in CFC, which are summarized in the table below:
Data Source: PeopleSoft Financials, Propworks, FOX records
Recommendations
1. Seek and recover the $10,578 in underpaid Percentage Fees.
2. Assess the applicability of a one-time late charge and any accrued interest.
3. Communicate with the Operator, to assure that future CFC’s are remitted as required by the
Agreement.
Management Response / Action Plan
Aviation Commercial Management will seek to recover the underpaid CFC’s, together with any applicable
late fees and interest charges. Aviation Commercial Management will also communicate both verbally
and in writing to remind the Operator of their obligations with respect to collection and remittance of the
CFC to the Port.
ADDITIONAL CFC DUE TO THE PORT
AGREEMENT YEAR
REPORTED AUDITED DIFFERENCE
2014-2015 $1,428,216 $1,439,304 $11,088
2015-2016 1,589,052 1,590,006 954
2016-2017 1,443,594 1,442,130 (1,464)
CFC Due $10,578
2) RATING: MEDIUM
DUE DATE: 10/31/2018
Fox Rent-A-Car, Inc.
June 2014 – May 2017
INTERNAL AUDIT
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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/enhan
cing 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