1. Airport Car Rental Revenue Audit October 2017
A Report to the Jackson County Board of Commissioners
Commissioners
Rick Dyer
Colleen Roberts
Robert Strosser
County Administrator
Danny Jordan
by the Internal Audit Program
County Auditor
Eric Spivak
Senior Auditors
Tanya Baize
Nicole Rollins

2. Overview and Purpose of Audit
The Airport has revenue producing contractual arrangements with 6 car rental agencies (5 on-site and 1 off-site).
Additionally, per Ordinance the agencies also collect a $3 a day Customer Facility Charge (CFC) on behalf of the Airport.
We conducted this audit to verify revenue is accurately and completely reported, received, and recorded in accordance with all applicable agreement terms and County Ordinance.

3. Fiscal Year Revenue
The agreement and CFC produced approximately $2,361,914 in Airport revenue for Fiscal Year
Revenue Type
Amount
CFC
$610,869
Counter Rent
$73,625
Ready Return Rent
$281,055
QTA Rent
$46,930
QTA Operation & Maintenance
$264,356
Concession Fee
$1,085,079
Total
$2,361,914

4. Summary of Audit Results
Overall, we found that controls provide reasonable assurance that revenue will be completely and accurately accounted for, submitted, and recorded.
We did find five items of minimal financial impact that the Airport should address. These items are discussed later in the report under the heading Findings.

5. Rent and Other Revenues
The Airport terminal includes 5 rental car agency offices/counters which are rented to agencies by means of a Request for Proposal process. Each interested agency bids a Minimum Annual Guarantee (MAG) amount. Spaces are assigned on the basis of the MAG bid. The highest bidder gets the most desirable location.
Agencies pay the airport the higher of its MAG or 10% of gross revenue.
The term “Concession Fee” is used when referring to this revenue.

6. Rent and Other Revenues
The agencies also pay to use the Quick Turn Around (QTA) car wash and cleaning facility. Agencies pay rent, operational and maintenance costs of the facility based on a proportional use basis.
Rent is also paid for the parking spaces at the Ready/Return rental car parking area. A set amount is established for each agency based on the number of spaces assigned.
Agencies also collect and remit to the Airport a $3 per transaction day Customer Facility Charge (CFC) per Ordinance

7. Off-Site Rental Car Agency
A sixth rental car agency operates off-site but rents vehicles to passengers arriving at the airport.
This agency pays the airport a commercial ground transportation fee for its use of the airport to pick up and return passengers. The fee amount is the greater of $30 per month or $1 per use of the airport’s ground transportation lane.
The agency also pays a concession fee equal to 10% of its gross revenue.

8. Finding #1- The 10% Concession Fee
Two rental car agencies are charging customers 11.11% rather than the 10% concession fee.
The contractual agreement between the Airport and the agencies prohibits the agencies from engaging in this practice. Regarding gross receipts, the contract states:
To pass through without markup to a government entity with no amount being retained by concessionaire (section 1.10C)

9. Finding #2 – ‘Vehicle Exchange’ Revenue
Two rental car agencies do not include ‘vehicle exchanges’ in gross revenue for the purpose of calculating the 10% concession fee. [The term ‘vehicle exchange’ refers to situations in which a renter rents a vehicle at one location but then exchanges it at another rental location for a different vehicle.]
Section 1.10 (B) of the agreement specifically includes vehicle exchanges as gross receipts:
“…For example, if a car originally rented at the airport is exchanged for another car at another of concessionaire’s locations, the entire transaction, including any revenue for the second car, shall be included in gross receipts.”

10. Finding #2 – ‘Vehicle Exchange’ Revenue
For the month that we examined in detail, there were exchanges that increased revenue but there were also exchanges that decreased revenue. The net change to gross revenue was $1,347.
The other three agencies reported that exchanged vehicle revenue is included in gross revenue. Because these agencies do not itemize vehicle exchange revenue separately in their detailed spreadsheets, we could not verify their practice or the net effect.

11. Finding #3 – CFC
A rewrite of ordinance (c) would be beneficial for two purposes:
The ordinance currently does not define the term ‘transaction day’ and, as a result, is open interpretation.
The County’s expectation regarding ‘grace periods’ when calculating CFC is not made explicit by the current wording of the ordinance.

12. Finding #3 - CFC Continued
Consistent with other airport activity, the intent is that a ‘transaction day’ refers to the part or whole of any twenty-four period. This is clear when referring to the first transaction day but is not clear when referring to additional transaction days.
The ordinance is worded: The CFC will be collected on a daily basis for all cars rented for twenty-four or fewer hours for the first transaction day, and every twenty-four hours for each transaction day thereafter.

13. Finding #3 - CFC Continued
Rental car companies allow grace periods of up to three hours when calculating rental days. They use the same grace periods when calculating the CFC.
Ordinance (C) does not specify that grace periods are allowed. However, section (a) of the ordinance states: That a Customer Facility Charges (CFC) fee shall be established upon each airport rental car companies’ customer’s rental contract.

14. Finding #4 – Corporate Discounts
The next time the Airport enters into contractual agreements with rental car agencies, the contracts should specify how the agencies are to treat discounts given when the agencies pre-negotiated rental rates with corporate customers.
Two of the agencies do not reduce gross revenue to account for the pre- negotiated discounts. For the month reviewed, this resulted in approximately $150 paid to the Airport that would not have been paid had they reduced gross revenue by the discount given to corporate customers.
The other three record the pre-negotiated rate as the rental rate and thereby account for the discount when calculating monthly gross revenue.

15. Finding #5 – Late Fees
One agency was late in 8 of 12 months in submitting its monthly payments for CFC. Per contract section 6.2, CFCs are to be remitted within 20 days after the end of each calendar month.
This agency was also late in all 12 months in making its monthly MAG payment. Per contract section 6.3, the MAG is to be paid on or before the first day of the month.
Section 6.5 of the agreement states: All amounts not paid by concessionaire when due shall bear a delinquency charge at the rate established by County’s then-current ordinance from the date such fees are due until they are paid in full.

16. Recommendations
The Airport should address the issue of the 2 agencies collecting an % concession fee from their customers.
To address the issue of Vehicle Exchanges, the Airport should either permit the practice since the net effect appears to be negligible and the cost to the agencies of complying may be burdensome, or require the two agencies to comply.
The County should update Ordinance with wording that defines ‘transaction day’ and establishes the expectation regarding the calculation of CFC when cars are returned within an agencies grace period.

17. Recommendations
The Airport should establish expected practices for including or excluding pre-negotiated corporate discounts for the purpose of calculating applicable gross revenue.
The Airport should hold rental car agencies accountable for timely submittal of payments or require late fee payments as applicable.

18. Scope and Methodology
We obtained detailed transaction data spreadsheets from each agency for the month of May We also obtained a sample of customer rental agreements from each agency to verify the completeness and accuracy of the detailed transaction data used by the agencies to calculate and report the monies due the Airport per the contractual agreements.
We reviewed each agencies monthly reports for Fiscal Year to verify calculations were accurate, that the greater of the MAG or 10% concession fee was paid, and that the funds were received and deposited timely.

19. Scope and Methodology Continued
We reviewed the annual true-up for the agreement year to verify each agencies sum payments for the year were the greater of the MAG or 10%.
We performed analytical tests of reasonableness using passenger and parking data to gain additional confidence that each agency was submitting a complete report of gross revenue earned by the agency.

20. Other Information About the Audit Process
We conducted our audit in accordance with Codified Ordinance 218 pertaining to the County Auditor.  This audit was included in the fiscal year Internal Audit Plan.
We conducted this performance audit in accordance with generally accepted government auditing standards.  These 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.
We did not withhold any information from this report because it was considered confidential or sensitive.

21. Management Response
The Airport has reviewed the report and per the recommendations will do the following:
The Airport will send a notice to the two agencies collecting the 11.11% concession fees in violation of the concession agreement.
The Airport will better address the issue of vehicle exchanges in the new concessions agreement slated for August 2018.
Codified Ordinance may be updated to better define transaction day and any other portion of a day charged.
The 2018 concessions agreement will establish expectations for pre- negotiated corporate discounts for the purpose of calculating applicable gross revenue.
Late fees will be charged on all past due payments as provided by the contract.