INTERNAL AUDIT REPORT
LIMITED CONTRACT COMPLIANCE
MAD ANTHONY’S, INC.
FISHERMEN’S TERMINAL
JANUARY 1, 2017 – DECEMBER 31, 2018
ISSUE DATE: APRIL 23, 2019
REPORT NO. 2019-05
INTERNAL AUDIT
Mad Anthony’s Inc.
January 2017 – 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 .................................................................................................................................. 6
Mad Anthony’s Inc.
January 2017 – December 2018
3
EXECUTIVE SUMMARY
Internal Audit (IA) completed an audit of the Fishermen’s Terminal Restaurant Lease Agreement
(Agreement) between Mad Anthony’s Inc. and the Port of Seattle (Port). The Agreement was signed in
1987 for Mad Anthony’s to operate Chinook’s Restaurant at Fishermen’s Terminal.
The period audited was January 1, 2017 through December 31, 2018. The audit was performed to
determine whether Mad Anthony’s complied with significant provisions of the Agreement including
whether reported gross revenues and the percentage rent paid to the Port were complete and
accurate.
We identified two items that, per the contract, Mad Anthony’s should have included in gross revenue.
1) Mad Anthony’s did not report $194,461.17 in gross revenue to the Port, during the two-year
period under audit. These amounts were from Surcharges and Family and Friends Meals,
which resulted in approximately $15,557 in additional percentage fees, due to the Port.
The issue is discussed in more detail on page six.
We extend our appreciation to management and staff of the Economic Development Department, Mad
Anthony’s, and the Accounting and Financial Reporting Department for their assistance and
cooperation during the audit.
Glenn Fernandes, CPA
Director, Internal Audit
RESPONSIBLE MANAGEMENT TEAM
Dave McFadden, Managing Director, Economic Development
Melinda Miller, Director, Real Estate Asset Management
Rebecca Schwan, Senior Real Estate Manager
Mad Anthony’s Inc.
January 2017 – December 2018
4
Anthony’s Restaurant is a family of unique restaurants located throughout the Pacific Northwest.
Anthony’s is locally owned and focuses on waterfront view locations throughout the Puget Sound. One
of those locations is Chinook’s on Salmon Bay at Seattle’s Fishermen’s Terminal.
In September 1987, the Port entered into a Lease Agreement with Mad Anthony’s to operate
Chinook’s restaurant at Fishermen’s Terminal. The Agreement sets a fixed Minimum Rent and also
requires additional Percentage Rent from gross sales of food and beverage, as well as any other
sales.
Effective in 1990, percentage rent was established at 6.25% of gross sales, up to the first $3 million of
annual gross sales. The $3 million figure has been adjusted annually since 1990, for the annual
percentage change in the “food and beverage component” of the US Consumer Price Index (CPI) for
the Seattle-Everett Area. Percentage rent in excess of the CPI adjusted threshold is charged at 8%.
Monthly minimum rent is due on or before the first day of each calendar month. For quarterly
percentage rent, the computation of gross sales for the preceding quarter must be certified by an
officer of the Lessee and submitted to the Port within 30 days of each quarter ended.
The table below reflects total Gross Revenues, Minimum Rent, and Percentage Rent, as reported by
Anthony’s:
Year
Gross Revenue
Minimum Rent
Percentage Rent
Total Rent
2014
$6,660,194
$339,479
$97,539
$437,018
2015
6,081,214
338,929
127,399
466,328
2016
7,281,630
347,090
135,811
482,901
2017
7,391,794
356,316
134,753
491,069
2018
7,340,829
370,242
114,247
484,489
Total
$34,755,661
$1,752,056
$609,749
$2,361,805
Source: AFR YE files, PeopleSoft, Mad Anthony's certified revenue reports.
BACKGROUND
Mad Anthony’s Inc.
January 2017 – December 2018
5
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 2017 through December 2018. After identifying the significant
provisions in the Agreement, we performed audit procedures that included:
Revenue Completeness and Accuracy
• Reconciled revenues reported to the Port, to the Lessee’s general ledger and to the revenue
reports certified by Mad Anthony’s.
• Identified large variances or unusual revenue trends and inquired with Mad Anthony’s to
determine the nature and cause.
• Verified an accurate Consumer Price Index was used to calculate the percentage of revenue
calculation.
• Agreed point of sales data to general ledger and revenue reports.
• Verified the timeliness of payments.
Insurance and Rent Security
• Determined whether commercial general liability insurance and rent security complied with
Agreement terms.
AUDIT SCOPE AND METHODOLOGY
Mad Anthony’s Inc.
January 2017 – December 2018
6
SCHEDULE OF FINDINGS AND RECOMMENDATIONS
Mad Anthony’s did not report $194,461.17 in gross revenue to the Port, during the two-year
period under audit. These amounts were from Surcharges and Family and Friends Meals, which
resulted in approximately $15,557 in additional percentage fees, due to the Port.
Surcharge
From January 2017 through March 2018, a four percent surcharge was added to customer’s bills. This
surcharge is different from server tips, which are generally excludable from gross revenue. Half (2%)
of the surcharge or $172,055.21 which was paid to kitchen staff, was not included in gross revenue.
The Agreement does not list surcharges as an allowable deduction from gross revenue.
Employee Meals
During our two year scope period, $22,405.96 was coded to employee meals and not included in
revenue. These meals included family and friends of the employee and was offered at a 25% discount.
While employee meals are listed as an approved deduction from gross revenue, the Agreement does
not identify revenue earned for the family and friends portion of the meals, as an allowable exclusion.
Recommendations:
Management should pursue collection of the additional percentage fees detailed above.
Management Response/Action Plan:
Management accepts that Mad Anthony’s has understated revenues during the audit period and will
pursue collection of $15,557.
DUE DATE: 12/31/2019
1) RATING: MEDIUM
Mad Anthony’s Inc.
January 2017 – December 2018
7
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
