INTERNAL AUDIT REPORT

LIMITED CONTRACT COMPLIANCE

DTG OPERATIONS, INC.

DBA THRIFTY CAR RENTAL

JUNE 2014 – MAY 2017

ISSUE DATE: NOVEMBER 7, 2018

REPORT NO. 2018-12

Thrifty Car Rental

June 2014 – May 2017

INTERNAL AUDIT

TABLE OF CONTENTS

EXECUTIVE SUMMARY .......................................................................................................................................... 3

BACKGROUND ....................................................................................................................................................... 4

AUDIT SCOPE AND METHODOLOGY ...................................................................................................................... 5

SCHEDULE OF FINDINGS AND RECOMMENDATIONS .......................................................................................... 6

APPENDIX A: RISK RATINGS.................................................................................................................................. 8

Thrifty Car Rental

June 2014 – May 2017

INTERNAL AUDIT

EXECUTIVE SUMMARY

Internal Audit (IA) completed an audit of the Lease Agreement (Agreement) between Thrifty Car Rental

(Thrifty) and the Port of Seattle (Port) for the period June 1, 2014 through May 31, 2017. The audit

objective was to determine whether Thrifty 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 accurate.

We determined that Thrifty underreported certain gross revenue items and the CFC.

1) Thrifty did not report $103,577 in incidental gross revenue, resulting in approximately $10,358 in

additional Percentage Fees owed to the Port.

2) 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, Thrifty did not charge the CFC and as a

result, did not remit $111,912 to the Port.

The two items resulted in an underpayment to the Port of $122,270, 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.

Additionally, section 8.2.1 of the Agreement indicates that the full cost of the audit shall be borne by the

Operator for a discrepancy of more than one percent (1%) for the CFC for any twelve (12) month audit

period. The discrepancy was greater than one percent for the 12-month periods ending May 31, 2015

and 2016. IA provided audit cost details to Port Management.

We extend our appreciation to management and staff of the Aviation Commercial Management

Department, Thrifty, 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

Thrifty Car Rental

June 2014 – May 2017

INTERNAL AUDIT

Dollar Thrifty Automotive Group, Inc. (DTG) is the former holding company of Thrifty Car Rental. DTG

was acquired by The Hertz Corporation in November 2012.

In July 2008, the Port entered into a Consolidated Rental Car Facility Lease Agreement (Agreement) with

Thrifty. The terms of the Agreement provide for a Minimum Annual Guarantee (MAG) equal to 85% of the

total amount paid to the Port for the previous Agreement year. Additionally, the Agreement requires a

Percentage Fee equal to 10% of 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

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 Revenues, Percentage Fees, and CFC fees:

Data Source: PeopleSoft Financials and Propworks

Agreement Year Gross Revenues Percentage Fees CFC Fees

2014 - 2015 15,941,988 1,594,199 2,130,900

2015 - 2016 15,136,848 1,513,685 2,151,396

2016 - 2017 14,348,098 1,434,810 2,090,460

Total 45,426,934$ 4,542,694$ 6,372,756$

BACKGROUND

Thrifty Car Rental

June 2014 – May 2017

INTERNAL AUDIT

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 revenues reported to the Port, to the Operator’s general ledger, revenue reports, and to

Thrifty’s 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 requirements

complied with Agreement terms.

AUDIT SCOPE AND METHODOLOGY

Thrifty Car Rental

June 2014 – May 2017

INTERNAL AUDIT

SCHEDULE OF FINDINGS AND RECOMMENDATIONS

Thrifty did not report $103,577 in incidental gross revenue, resulting in approximately $10,358 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:

 UMP (Uninsured Motorist)

 Portable GPS

 Toll Road (Plate Pass)

 Early / Late Return Fee

 Travel Tab / Wifi

 Neverlost

 Detail Cleaning Fee

 Impound Recovery Fee

The Operator has acknowledged these items. The underreported revenue is reflected in the table below.

Data Source: PeopleSoft Financials, Propworks, Thrifty records

Recommendations:

1. Seek and recover $10,358 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.

Agreement Year Gross Revenues Audited Difference Percentage Fee (10%)

2014 - 2015 15,941,988 15,952,358 10,370 1,037

2015 - 2016 15,136,848 15,223,338 86,490 8,649

2016 - 2017 14,348,098 14,354,814 6,716 672

Total 10,358$

1) RATING: MEDIUM

DUE DATE: 12/31/2018

Thrifty Rent-A-Car, Inc.

June 2014 – May 2017

INTERNAL AUDIT

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, Thrifty did not charge the CFC and as a result, did

not remit $111,912 to the Port.

The lease Agreement under Section 6.2.1 stipulates:

“Operator shall collect a daily Customer Facility Charge on all vehicle rental transactions with Airport

Customers…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, Thrifty records

Recommendations

1. Seek and recover the $111,912 in underpaid CFC’s.

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, as well as the costs attributable to the CFC portion of the audit, which IA

calculated as $9,559.00. 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.

Agreement Year Reported Audited Difference

2014 - 2015 2,130,900 2,205,120 74,220

2015 - 2016 2,151,438 2,187,720 36,282

2016 - 2017 2,090,460 2,091,870 1,410

Total 111,912$

2) RATING: MEDIUM

DUE DATE: 12/31/2018

Thrifty Rent-A-Car, Inc.

June 2014 – May 2017

INTERNAL AUDIT

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