INTERNAL AUDIT REPORT
LIMITED CONTRACT COMPLIANCE
AIRPORT TENANT MARKETING PROGRAM
JANUARY 2016 – DECEMBER 2018
ISSUE DATE: FEBRUARY 22, 2019
REPORT NO. 2019-01
INTERNAL AUDIT
Airport Tenant Marketing Program
January 2016 – December 2018
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
Airport Tenant Marketing Program
January 2016 – December 2018
3
EXECUTIVE SUMMARY
Internal Audit (IA) completed an audit of the Airport Tenant Marketing Program (Program) for the period
January 1, 2016 through December 31, 2018. The objective of the audit was to assess compliance with
provisions as reflected in the lease and concession agreements (Agreements). Specifically, the accuracy
and completeness of fund contributions, internal controls over disbursements, and the existence of
annual business plans.
The objective of the Program, as reflected in the 2018 Marketing Plan, is “to increase awareness for the
Airport Dining and Retail (ADR) locations and promote brand identity for the entire ADR program.” The
program is funded by the concessionaires at the Airport who contribute one half of one percent (0.5%) of
monthly gross sales, not to exceed $24,000 per agreement year. For leases signed in 2016 and beyond,
the marketing fee is capped at $30,000.
We concluded that disbursements support the promotion of concessions and marketing-related staff
activities, as required per the Agreements. We also validated that fund assessments were materially
complete and accurate. However, we identified one medium rated issue, which if implemented, will
assure compliance with the Agreements, will improve how decisions are made, and will increase overall
governance of the Program (see below):
1) The annual business plan outlining the objectives, budget, and evaluation methodology was not
created in 2017, as required per the Agreements. Furthermore, budget approvals and documentation of
key decisions were not consistently performed. With almost $1.2 million in annual fund contributions,
formal processes should be established to facilitate effective oversight and management of the Program.
This issue is discussed in more detail beginning on page six.
We extend our appreciation to Port management and staff for their assistance and cooperation during the
audit.
Glenn Fernandes, CPA
Director, Internal Audit
Responsible Management Team
Dawn Hunter, Senior Manager, Airport Dining and Retail
Lance Lyttle, Managing Director Aviation
Jim Schone, Director, Aviation Business Development
Airport Tenant Marketing Program
January 2016 – December 2018
4
In 2005, the Port established a marketing program (Program) to promote the concessions at the Airport.
The goal of the Program is to “reach” the active traveler at the most effective moments and locations
throughout their travel window. The marketing approach is not designed to add clutter to an already
complex messaging environment, but to use a simple and visible strategy that is intuitive and highly
visible.
Each calendar year, the Port develops the Program’s annual business plan, objectives, evaluation
methodology, and budget for the year based in part on an analysis of the effectiveness of the previous
year’s Program.
The program is funded by the concessionaires at the Airport who contribute one half of one percent
(0.5%) of monthly gross sales not to exceed $24,000 per agreement year. The limit increased to $30,000
for leases signed subsequent to January 2016. As of January 2016, intermediate kiosks joined the
program contributing one quarter of one percent (0.25%) of monthly gross sales, but no more than
$15,000 per facility year.
All contributions to the Program may only be expended for the promotion of concessions and marketing
related staff activities at the Airport and for no other purposes. These expenditures may include
advertising, media placements, special events, promotional events, brochures, and catalogues.
The table below reflects actual contributions and expenditures for the years ended 2016, 2017, and 2018.
Description
2016
2017
2018
Tenant Marketing Assessment
$1,151,978
$1,158,873
$1,145,614
Advertising
(327,185)
(323,144)
(547,449)
Personal Services
(163,013)
(192,934)
(211,253)
Other Contracted Services
(110,621)
(57,697)
(116,904)
Other
(25,118)
(29,195)
(22,179)
Difference
$526,041
$555,903
$247,829
Data source: PeopleSoft Financials
Airport Tenant Marketing Program
January 2016 – December 2018
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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 2016 through December 2018 and included the following procedures:
Annual Business Plan
• Determined whether Port management had established an annual business plan that included an
objective, evaluation methodology, and a budget for the calendar year.
• Assessed the accuracy of information contained in the annual budget.
Disbursements
• Selected 20 disbursements (5 in 2016; 5 in 2017; 10 in 2018) and performed the following
procedures:
o Determined whether they supported the promotion of concessions and marketing related
activities
o Verified that they were coded correctly
o Validated that they were approved by an authorized individual
o Agreed the payments to the invoices
• Evaluated internal controls of the disbursements process.
Contributions
• Judgmentally selected 12 concessionaires and validated that one half of one percent (0.5%) of gross
revenue was billed.
• Selected two kiosks and validated that one quarter of one percent (0.25%) of gross revenue was
billed.
• Validated that the marketing fee did not exceed the marketing cap.
AUDIT SCOPE AND METHODOLOGY
Airport Tenant Marketing Program
January 2016 – December 2018
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SCHEDULE OF FINDINGS AND RECOMMENDATIONS
The annual business plan outlining the objectives, budget, and evaluation methodology was not
created in 2017, as required per the Agreements. Furthermore, budget approvals and
documentation of key decisions were not consistently performed. With almost $1.2 million in
annual fund contributions, formal processes should be established to facilitate effective oversight
and management of the Program.
1) The Port is required to develop and establish an annual business plan. The plan includes objectives,
evaluation methodology, and budget based in part on an analysis of the effectiveness of each year’s
Program. The plan is designed to promote the concessions at the Airport. However, in 2017, a plan was
not developed. Additionally, the 2018 plan understated total commitments by $47,500.
2) Although a Marketing Advisory Group (Group) had been organized, processes to facilitate agreed upon
and transparent decision making had not been established. For example, representatives from retail, food
and beverage, and kiosks had not been identified, the Group did not formally approve the budget or the
annual business plan, and minutes to evidence approval and other key decisions were not regularly
documented.
3) The 2018 Marketing Plan indicated that the contribution limit was increased from $24,000 to $30,000
for concession leases signed subsequent to January 2016 despite budget surpluses of $592,000 and
$1.375 million in 2016 and 2018, respectively.
Recommendations
To facilitate effective oversight and use of marketing funds, we recommend formally establishing roles,
responsibilities, and protocols. These elements could be captured in a Marketing Program Charter as the
primary governing document that defines how frequently the Advisory group meets, how ideas are
explored and discussed, and who has authority to make key decisions.
Management Response/Action
Airport Dining and Retail (ADR) Program staff agrees with the findings that the Marketing Advisory Group
(Group) did not meet on a regular basis prior to 2018 and did not have an approved budget or a set of
agreed governing principles. In June 2018, ADR Staff met with all ADR tenants regarding the Tenant
Marketing Fund. The tenants decided that all tenants who pay into the Tenant Marketing Fund should
have a voice in the Group. The tenants were then provided with the draft budget and operating standards.
This Group met again on September 6, and October 11,
2018. After each meeting, ADR staff emailed the
meeting minutes to the members of the Group for their approval. In addition, some decisions were made
by the members of the Group via email as agreed upon in the initial meeting in June. In the future, all
meetings will follow the process agreed upon by the Group.
1) RATING: MEDIUM
Airport Tenant Marketing Program
January 2016 – December 2018
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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/enha
ncing 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