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INTERNAL AUDIT REPORT
Limited Contract Compliance Audit
Seattle Chocolate Company
July 2023 – December 2023
Issue Date: November 14, 2024
Report No. 2024-09
2
TABLE OF CONTENTS
Executive Summary ..................................................................................................................................................................... 3
Background .................................................................................................................................................................................... 4
Audit Scope and Methodology .............................................................................................................................................. 5
Schedule of Observations and Recommendations ........................................................................................................ 6
Appendix A: Risk Ratings .......................................................................................................................................................... 7
3
Executive Summary
Internal Audit (IA) completed a limited scope audit of the Lease and Concession Agreement (Agreement)
between Seattle Chocolate Company and the Port of Seattle (Port). The original period audited was July
1, 2023, through December 31, 2023. After finding discrepancies during our initial testing, we broadened
our scope to January 2022 through July 2024.
The audit was performed to determine whether concession fees were complete, properly calculated,
and remitted timely to the Port.
We concluded that Seattle Chocolate Company under-reported revenue and owes additional monies to
the Port. This issue is described below with further detail on page six.
1. (Medium) Discounts were incorrectly deducted, and two reporting errors resulted in
under-reported revenue of $81,850.57 and an additional $9,822.07 in concession fees.
We extend our appreciation to management and staff of the Airport Dining and Retail, and the
Accounting & Financial Reporting Departments for their assistance and cooperation during the audit.
Glenn Fernandes, CPA
Director, Internal Audit
Responsible Management Team
Lisa Lam, Director, Accounting and Financial Reporting
Khalia Moore, Senior Manager, Airport Dining and Retail
Jeff Wolf, Director, Aviation Commercial Management
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Background
On August 17th, 2016, the Port entered into a lease agreement (AIR002093) with Seattle Chocolate
Company.
Seattle Chocolate Company operates a retail store selling chocolate, truffles, and jcoco by Gate C1 in
the airport. Seattle Chocolate Company makes their products in Washington with ethically sourced
ingredients. The company is woman-owned, rainforest alliance certified, and carbon neutral.
Percentage fees were due in arrears, to the extent the percentage fees are higher than the monthly
MAG (Minimum Annual Guarantee) which is paid in advance. Effective January 1, 2023, only the
percentage fee payments are made, since the MAG was not considered until the end of the lease
year.
The table below reflects 2022 and 2023 Gross Sales and Percentage Fees:
Year
Gross Sales
Percentage Fee
2022
$2,041,876
$245,025
2023
2,293,684
279,242
Total
$4,335,560
$524,267
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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.
In some instances, we used judgmental sampling methods to determine the samples selected for our
audit test work. In those cases, the results of the work cannot be projected to the entire population.
The period audited was July 2023 through December 2023 and included the following procedures below.
Limited procedures were performed for the periods outside of the original scope and were determined
to be tested as necessary.
• Validated that the percentage fees 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 Department
• Agreed point of sale summary reports to the general ledger
• Obtained the Annual Gross Sales Report from the Seattle Chocolate Company, and compared
the report to year-end gross sales data reported to AFR
• Reviewed the Profit & Loss statements for variances
• Reviewed a random sample of invoices to determine if they were paid on time and for the full
amount charged
• Validated that the concessionaire was not certified through the Office of Minority and Women’s
Business Enterprises and confirmed with management that they were not reflected as such on
the Airport Concession Disadvantaged Business Enterprise (ACDBE) participation report
submitted to the Federal Aviation Administration (FAA)
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Schedule of Observations and Recommendations
Discounts were incorrectly deducted, and two reporting errors resulted in under-reported
revenue of $81,850.57 and an additional $9,822.07 in concession fees.
According to section 1.18 of the Agreement, sales discounts are generally not allowable deductions.
However, our testing identified differences between the point of sales journal and what had previously
been reported to the Port. As a result, $47,202.22 was incorrectly deducted from gross revenue. The
table below represents discounts and resulting concession fees due.
We also identified reporting errors of $34,648.35. The errors occurred because revenues from the
prior year was erroneously entered into current year sales figures. The table below represents
incorrect gross sales reported from the prior year.
We observed that the VP of Finance who prepares the revenue reports was also the person who
certified to the accuracy of the concessionaire’s books and records in the annual report.
Recommendations:
Collect monies owed, excluding any monies already paid because of the audit.
We also suggest an additional person, the CEO or an external auditor, review the prior year’s books
and records and sign the annual certification with the VP of Finance. Doing so will align with
segregation of duties.
Management Response:
Aviation Commercial Management (AVCM) staff agrees with the findings and recommendations of the
audit. AVCM staff will follow-up with Seattle Chocolates Company to ensure the amounts identified in
the audit are paid and that an additional person reviews and signs certifications.
Year Month Discount Concession Fee
2022 January $1,598.15 $191.78
February 2,235.76 268.29
March 2,544.36 305.32
October 2,645.07 317.41
2023 March 2,634.06 316.09
June 6,612.76 793.53
September 3,097.30 371.68
2024 January 3,332.22 399.87
February 15,655.39 1,878.65
March 3,860.30 463.24
April 2,986.85 358.42
Total $47,202.22 $5,664.27
Year Month Reporting Error Concession Fee
2022 November $21,296.04 $2,555.52
2024 July 13,352.31 1,602.28
Total $34,648.35 $4,157.80
1) Rating: Medium
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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
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
