INTERNAL AUDIT REPORT
Limited Contract Compliance Audit
Qdoba Restaurant Corporation
February 2018 – December 31, 2019
Issue Date: May 28, 2020
Report No. 2020-07
INTERNAL AUDIT
Qdoba Restaurant Corporation
February 2018 – December 2019
2
TABLE OF CONTENTS
Executive Summary ................................................................................................................................................ 3
Background ............................................................................................................................................................. 4
Audit Scope and Methodology ............................................................................................................................... 5
Appendix A: Risk Ratings ....................................................................................................................................... 6
Qdoba Restaurant Corporation
February 2018 – December 2019
3
Executive Summary
Internal Audit (IA) completed an audit of the Concession Lease Agreement between Qdoba Restaurant
Corporation and the Port of Seattle (Port).
The Period audited was February 1, 2018 through December 31, 2019. The audit was performed to
determine whether Qdoba Restaurant Corporation complied with significant provisions of the
Agreement, including whether reported gross revenues and percentage fees were complete and
accurate.
We concluded that the Lessee materially complied with the significant terms in the Agreement.
No issues were identified requiring management response.
We extend our appreciation to management and staff of the Airport Dining and Retail and the Accounting
and Financial Reporting Departments for their assistance and cooperation during the audit.
Glenn Fernandes, CPA
Director, Internal Audit
RESPONSIBLE MANAGEMENT TEAM
Jim Schone, Director, Aviation Business Development
Dawn Hunter, Senior Manager Airport Dining and Retail
Qdoba Restaurant Corporation
February 2018 – December 2019
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Background
Qdoba Restaurant Corporation, headquartered in California, was founded in 1995. Trading as Qdoba
Mexican Eats, it now has 740 restaurants in the United States and Canada.
The Port of Seattle (Port) entered into a Concession Lease Agreement (Agreement No 002096) with
Qdoba Restaurant Corporation, on August 10 2016, with an occupancy date of March 17, 2017. The
lease expires on August 30, 2027. As per this Agreement, which was the one covered in the scope of
this audit, the first agreement year was February 2018 to December 2018. The second agreement year
was January to December 2019.
The terms of the Agreement provide for an initial Minimum Annual Guarantee (MAG) which is equals to
$ 510,000 per annum, payable in advance on the 1
st
day of the month. For subsequent years, the MAG
is equal to 85% of the total amount paid to the Port for the previous Agreement Year.
Additionally, the Agreement requires a Percentage Fee that is calculated on a graduated scale as shown
in the table below. The Percentage Fee, if applicable, is due by the 15
th
of the following month.
Annual Gross Sales
Percentage of
Gross Sales
Less than $ 3,400,000
15.0%
$ 3,400,000 - $ 5,500,000
17.5%
More than $ 5,500,000
20.0%
The table below reflects the Gross Revenues as reported by Qdoba and the Minimum Rent and
Percentage Fees as billed by the Port of Seattle:
Year
Gross Revenue
Minimum Rent
Total Rent
2018
1
6,228,878
467,500
1,023,276
2019
7,199,177
510,000
1,218,472
Total
$13,428,055
$ 977,500
$2,241,748
Source: Qdoba Monthly Revenue Reports; Peoplesoft Financials, AFR YE documents
1
The 2018 figures are for 11 months starting from February to December 2018
Qdoba Restaurant Corporation
February 2018 – December 2019
5
Audit Scope and Methodology
We conducted the engagement 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 conduct an engagement to obtain sufficient and appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our engagement objectives. We believe
that the evidence obtained provides a reasonable basis for our conclusions based on our engagement
objectives.
The Agreement reviewed during this audit was Agreement number 002096 and the period was February
2018 through December 2019. After identifying significant provisions in the Agreement, we performed
the following audit procedures:
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 Concessionaire’s monthly revenue reports, charge
sheets, and to independently audited schedules.
• Analyzed deductions in the data sheets (General Ledger) to determine whether they were
properly classified and correctly deducted from the gross revenues, as provided in the Lease
Agreement
Compliance
• Reviewed the Concessionaire’s Rent Security Deposit for compliance with the Lease Agreement,
Port of Seattle Policy (Port RE-2) and Washington State Law (RCW 53.08.085).
Qdoba Restaurant Corporation
February 2018 – December 2019
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Appendix A: Risk Ratings
Findings identified during the audit are assigned a risk rating, as outlined in the table below. Only one
of the criteria needs to be met for a finding to be rated High, Medium, or Low. Findings rated Low will be
evaluated and may or may not be reflected in the final report.
Rating
Financial
Stewardship
Internal
Controls
Compliance Public
Commission/
Management
High Significant
Missing or not
followed
Non-compliance
with Laws, Port
Policies,
Contracts
High probability
for external audit
issues and / or
negative public
perception
Requires
immediate
attention
Medium Moderate
Partial controls
Not functioning
effectively
Partial
compliance with
Laws, Port
Policies
Contracts
Potential for
external audit
issues and / or
negative public
perception
Requires
attention
Low Minimal
Functioning as
intended but
could be
enhanced to
improve
efficiency
Mostly complies
with Laws, Port
Policies,
Contracts
Low probability
for external audit
issues and/or
negative public
perception
Does not
require
immediate
attention