This report is a matter of public record, and its distribution is not limited. Additionally, in accordance with
the Americans with Disabilities Act, this document is available in alternative formats on our website.
INTERNAL AUDIT REPORT
Limited Contract Compliance Audit
Seattle Air Ventures
July 2021 – June 2023
Issue Date: November 29, 2023
Report No. 2023-15
Seattle Air Ventures
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
Seattle Air Ventures
3
Executive Summary
Internal Audit (IA) completed an audit of the Lease and Concession Agreement (Agreement) between
Airport Management Services, LLC, later assigned to Seattle Air Ventures, and the Port of Seattle (Port).
The period audited was July 1, 2021, through June 30, 2023. The audit was performed to determine
whether concession fees were complete, properly calculated, and remitted timely to the Port.
Fifteen stores, with a range of offerings including convenience retail, cosmetics, and food and beverage,
operate under these agreements. Below is a listing of each store operating under both leases:
During our audit, we identified the following issue:
(Medium) In 2021, a variance of $142,662 in gross sales was reported between the externally audited
financial statements and the amount previously reported to the Port. We also identified differences
between point-of-sale revenue and the general ledger.
This issue is discussed in more detail on page six.
We extend our appreciation to management and staff of the Airport Dining and Retail, and the
Accounting & Financial Reporting (AFR) Departments for their assistance and cooperation during the
audit.
Glenn Fernandes, CPA
Director, Internal Audit
Responsible Management Team
Bridget Boldt, Senior Business Manager, Airport Dining and Retail
Lisa Lam, Acting Director, Accounting and Financial Reporting
Lance Lyttle, Managing Director, Aviation
Khalia Moore, Senior Manager, Airport Dining and Retail
Scott Van Horn, Senior Business Manager, Airport Dining and Retail
Jeff Wolf, Director, Aviation Commercial Management
AIR002017 / AIR002732
AIR002018 / AIR002733
(CA-02) Hudson Marketplace (BC-01) Hudson News
(CA-12) Hudson News (CC-03) Hudson Marketplace
(CA-14) Hudson News
(CC-12) Hudson Marketplace
(CB-08) Hudson Marketplace (CD-04) Hudson News
(CT-11) Made in Washington (CT-04) MAC Cosmetics
(CT-17) Hudson Marketplace (CT-05) Coach
(NE-05) Hudson Marketplace
(SE-03) Euro Café
(SS-03) Hudson Marketplace
Seattle Air Ventures
4
Background
On March 30, 2016, The Port of Seattle (Port) entered into two lease agreements (AIR002017 and
AIR002018) with Airport Management Services, LLC. Effective January 1, 2022, the Port executed
Conditional Consents to Assignment of both leases that transferred all rights and obligations under the
Agreements from Airport Management Services, LLC to Seattle Air Ventures. Through this assignment,
leases AIR002017 and AIR002018 ended and were replaced with AIR002732 and AIR002733,
respectively.
These leases provide the lessee the right to operate convenience retail stores under Hudson News and
Hudson Marketplace, high-end retail stores under MAC Cosmetics and Coach
TM
, and food and beverage
stores under Euro Café. Combined these leases represent 15 stores.
A Minimum Annual Guarantee (MAG) “equal to eighty five percent (85%) of the total amount paid
(whether by Minimum Annual Guarantee or Percentage Fees) by Concessionare, in the previous
calendar year…” Beginning on January 1, 2023, instead of due monthly and in advance, the MAG is
subject to an annual reconciliation. During the reconciliation, the Agreement Year’s total Percentage
Fees due to the Port are compared to the annual MAG, and any amount that, the agreement year’s
percentage fees, falls below the MAG, is due to the Port thirty (30) days following the Port’s notice to
the Lessee.
Percentage fees are due in arrears, to the extent the percentage fees were higher than the monthly
MAG (paid in advance). Effective January 1, 2023, only the percentage fee payments are made since
MAG is not considered until the end of the lease year. The table below reflects the Gross Revenues
and Percentage Fees billed:
Percentage Fees are calculated using the following schedule:
Percentage fees of annual gross sales
Category
Annual Gross Sales
Percentage
News/Gift & Convenience
< $25,000,000
16%
$25,000,000 - $45,000,000
17.5%
> $45,000,000
19%
Specialty Retail
< $10,000,000
9%
$10,000,000 - $15,000,000
10%
> $15,000,000
11.5%
Seattle Air Ventures
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, 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 January 2021 through June 2023 and included the following procedures:
Concession Fees Completeness, Accuracy, and Timeliness
• Validated that the percentage fees for non-specialty and specialty categories were calculated
correctly and in accordance with the lease revenue thresholds.
• Agreed Concessionaire’s monthly general ledger sales data to what was provided to the
Accounting & Financial Reporting (AFR) Department.
• Agreed point of sale summary reports to the general ledger and identified variances. These
variances were discussed and cleared with Seattle Air Ventures.
• Obtained the audited Schedules of Gross Sales Report produced by Marcum, LLP, the
Independent Certified Public Accountant, and compared the report to year-end gross sales data
reported to AFR.
Seattle Air Ventures
6
Schedule of Findings and Recommendations
In 2021, a variance of $142,662 in gross sales was reported between the externally audited
financial statements and the amount previously reported to the Port. We also identified
differences between point-of-sale revenue and the general ledger.
The agreements require the concessionaire to provide an annual report reflecting “Gross Sales for the
preceding calendar year accompanied by a signed certificate of an independent Certified Public
Accountant (CPA), concessionaire’s Chief Financial Officer, or Chief Executive Officer…” The report
asserts that the individual performed tests of the books and records and that the Concessionaire’s report
is free from material misstatement.
The independent audit reflected higher revenue than had been reported to the Port by $142,662.27. As
of August 15, 2023, the Port issued billing adjustments for additional amount owed. The table below
reflects the 2021 differences in gross sales reported:
Seattle Air Ventures’ explanation for the difference, was that advertising revenue for the four-month
period, beginning March 2021 through June 2021 had not been captured during the 2021 reporting
year. While the explanation was logical, the variances did not reconcile to the difference we identified,
and documentation was not provided.
We also compared point-of-sale revenue data to the general ledger. Our testing identified differences
that could also be related to advertising, but explanations were not provided. Therefore, we were
unable to conclude with reasonable assurance, that what was reported was accurate.
Recommendations:
Management within the Port’s Airport Dining Retail group, in partnership with Internal Audit, should
continue discussions and seek documentation from Seattle Air Ventures to validate that accounting
records agree to verbal assertions.
Management Response/Action Plan:
We agree with the audit finding and will engage Seattle Air Ventures and Internal Audit to determine
what is causing the variance. Further, we agree that variances should be supported with documentation
and will work to resolve these differences by June 30, 2024.
1) Rating: Medium
DUE DATE: 6/30/2024
Lease
Reported to AFR
External Audit
Under-reported
AIR002017
23,659,871.88
$
23,721,458.00
$
61,586.12
$
AIR002018 - AIR002733
30,279,676.85
$
30,360,753.00
$
81,076.15
$
Seattle Air Ventures
7
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
Moderate
probability for
external audit
issues and / or
negative public
perception
Requires
attention
Low Minimal
Functioning as
intended but
could be
enhanced
Mostly complies
with Laws, Port
Policies,
Contracts
Low probability
for external audit
issues and/or
negative public
perception
Does not
require
immediate
attention