INTERNAL AUDIT REPORT
Limited Contract Compliance Audit
Fireworks Galleries, LLC
November 2017 – December 2019
Issue Date: July 16, 2020
Report No. 2020-09
INTERNAL AUDIT
Fireworks Galleries, LLC
November 2017 – December 2019
2
TABLE OF CONTENTS
Executive Summary ................................................................................................................................................ 3
Background ............................................................................................................................................................. 4
Audit Scope and Methodology ............................................................................................................................... 5
Appendix A: Risk Ratings ....................................................................................................................................... 6
Fireworks Galleries, LLC
November 2017 – December 2019
3
Executive Summary
Internal Audit (IA) completed an audit of the Seattle-Tacoma International Airport Lease and Concession
Agreement (Agreement) between Fireworks Galleries, LLC (Fireworks) and the Port of Seattle (Port).
Fireworks pays the Port approximately $1.1 million in annual concession fees.
The period audited was November 2017 through December 2019. The audit was performed to determine
whether Fireworks complied with significant provisions in the Agreement including whether reported
gross revenues and percentage fees were complete and accurate.
We concluded that Fireworks materially complied with the significant terms of the Agreement.
No issues were identified requiring a management response.
We extend our appreciation to management and staff of the Aviation Commercial Management
Department and the Accounting and Financial Reporting Department for their assistance and
cooperation during the audit.
Glenn Fernandes, CPA
Director, Internal Audit
Responsible Management Team
Rudy Caluza, Director, Accounting and Financial Reporting
Dawn Hunter, Senior Manager, Airport Dining & Retail
Linda Nelson, Assistant Director, Financial Reporting Revenue Services
Jim Schone, Director, Aviation Business Development
Fireworks Galleries, LLC
November 2017 – December 2019
4
Background
In September of 2016, the Port entered into an Agreement with Fireworks to operate in two locations:
The Central Terminal and Concourse D. The terms of the Agreement provide for a Minimum Annual
Guarantee (MAG) equal to 85% of the total amount paid to the Port from the previous agreement year.
The MAG is payable, in advance, on or before the first day of each month. Additionally, the Agreement
requires payment of a Percentage Fee equal to a percentage of gross revenue, provided the fee is
higher than the MAG. The Percentage Fee is due on or before the fifteenth day of each succeeding
month, according to the following schedule:
Annual Gross Revenue
Percentage (%) of Gross Sales
Central Terminal
$1 to < $2,000,000
11%
$2,000,000 to < $4,000,000
12%
Over $4,000,000
13%
Concourse D
Annual Gross Sales
11%
Within 90 days after the close of each Agreement Year, Fireworks is required to provide the Port an
annual report reflecting the amount of Gross Sales for the preceding Agreement Year. The annual report
shall be accompanied by a signed certificate by an independent Certified Public Accountant or Fireworks
Chief Financial Officer or Chief Executive Officer. The certificate specifically states, a) he/she examined
the annual report, b) the examination included such tests that were considered necessary or appropriate
under the circumstances, c) the information was presented fairly, and d) conforms with and was
computed in compliance with the definitions set forth in the Agreement.
The table below reflects the gross concession revenue and percentage fees billed:
Agreement Year
Gross Revenue
November 2017 – December 2017
$1,452,937
January 2018 – December 2018
8,339,114
January 2019 – December 2019
8,813,696
Total
$18,605,747
Data Source: PeopleSoft Financials, AFR YE documents
Fireworks Galleries, LLC
November 2017 – December 2019
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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, 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 findings and conclusions based on our
engagement objectives.
The period audited was November 2017 through December 2019 and included the following procedures:
Revenue Completeness, Accuracy, Timeliness
• Agreed monthly revenue reports provided to the Port, to Fireworks’ general ledger.
• Validated that the annual report was submitted and signed by an independent CPA, Chief
Financial Officer or Chief Executive Officer from Fireworks.
• Reviewed the Agreement definition of Gross Sales, including exclusions, and reviewed
Fireworks records such as the chart of accounts, revenue reports, and general ledger, to
determine the completeness of prior years’ reporting.
• Recalculated the MAG and Percentage Fees to verify accuracy.
• Verified timeliness of payments for all months in the audit period.
Surety Compliance
• Reviewed Fireworks’ Rent Security Deposit for compliance with the Lease Agreement, Port of
Seattle Policy (Port RE-2) and Washington State Law (RCW 53.08.085).
Fireworks Galleries, LLC
November 2017 – 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