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Independence you can rely on
August 2021
Laura L. Doud
City Auditor
James Lam
Assistant City Auditor
Alvin Chu
Deputy City Auditor
Jennifer Lopez
Senior Performance Auditor
Airport Fees Performance Audit:
Processes to Manage Fees Used for
Operations and Facility Improvements
Can Be Strengthened
1
Table of Contents
Report Summary ...................................................................................................................... 2
I. Background ........................................................................................................................... 3
The Airport collects fees and reinvests them into operations and facility
improvements aimed to enhance the passenger experience. .................. 3
Fees Assessed by Long Beach Airport ......................................................................... 3
Long Beach Airport’s Fee Management ........................................................................ 4
II. Findings & Recommendations ............................................................................................ 5
Finding #1: Reconciliations of Airport fees are not performed consistently or
effectively, while reconciliations of rental car charges are not
performed. The audit identified missed airline fee revenues but did
not identify any unpaid car rental charges. ............................................... 5
Finding #2: The Airport lacks strong contract management practices, leading to
unenforced contract terms. ....................................................................... 17
III. Objective, Scope & Methodology ......................................................................................19
IV. Appendices ........................................................................................................................20
Appendix A: Reconciliation Results .......................................................................... 20
Appendix B: Contract Language Differences ............................................................ 21
V. Management Response ......................................................................................................23
2
Report Summary
What We Found
The Airport collects an average of $14 million in airline fees and
customer facility charges annually, representing 33% of the Airport’s
annual operating revenue. These airline fees and customer facility
charges are self-reported, creating an inherent risk that the total fee
amounts may be inaccurate. The Airport’s current processes to
review and reconcile the accuracy of fee amounts and the timely
collection of fees owed can be improved. The inconsistent nature of
the fee collection process is caused by a lack of existing policies and
procedures resulting in:
• Airline revenue reconciliations were not completed for four
years. By completing reconciliations, this audit found an
additional $72,827 in revenue owed to the Airport. While this
uncollected amount is very small relative to the collection
total, we believe that the inconsistent reconciliation of fees is
an important internal control deficiency and should be
addressed through process improvements without significant
ongoing cost to operations.
• Fee rates were not reviewed to ensure all correct rates were
applied, resulting in airlines sometimes paying fees based on
incorrect rates.
• Overnight aircraft parking spreadsheets were not transcribed
with accurate data. Had reconciliations been completed,
incorrect airline fees would have been assessed.
• Contractual terms with car rental companies and airlines are
inconsistent. Lack of enforcement led to a 10-month overdue
payment without any late fees being charged.
What We Recommend
Why This Audit Is Important
The Long Beach Airport
(Airport) fees form a significant
portion of the Airport’s
operating revenue and are
used to fund operations and
facility improvement projects
which help optimize passenger
traffic. Maintaining a high level
of passenger traffic helps
support the Long Beach
economy.
Audit Objective
Our audit evaluated the
Airport’s management of airline
fees and customer facility
charges to ensure fees are
properly assessed, collected,
reconciled, and deposited in
their entirety.
Acknowledgement
We thank management and
staff at the Airport for their
collaboration, assistance, and
cooperation during this audit.
Airport Fees Performance Audit: Processes to Manage Fees Used
for Operations and Facility Improvements Can Be Strengthened
August 2021
We recommend that the Airport create
written policies to establish consistent
procedures for oversight of airline fees
and customer facility charges revenue.
Additionally, the Airport needs to
ensure that contracts are updated to
reflect current practices and that
contract stipulations are followed.
3
I. Background
The Airport collects fees and reinvests them into operations and
facility improvements aimed to enhance the passenger
experience.
The Long Beach Airport (Airport) was established in 1923 as the first
municipal airport to serve Southern California and has since grown to be well-
recognized, ranking among the top 10 small airports in the United States in
2020, according to USA Today’s Readers’ Choice poll. The Airport has a
positive impact on the City of Long Beach and in the local economy. In Fiscal
Year (FY) 2019, 3.5 million passengers passed through the Airport, with each
passenger contributing $546 to our local economy, as outlined in the Airport’s
2019 Economic Impact Report.
To operate out of the Airport, companies must pay fees associated with their
use of the premises. Airline fees and customer facility charges paid by car
rental companies are among the several fees collected by the Airport. Airline
fees are reinvested back into Airport operations by funding capital projects,
such as a new ticketing lobby and a baggage claims area, aimed to maintain
modern facilities and enhance customer experience. Customer facility
charges could be used to construct consolidated airport vehicle rental
facilities and other car-rental related facility improvements.
By the estimates of the Airports Council International-North America, U.S.
airports will require $128 billion in improvements through 2023 to meet the
demands of travelers as well as airlines. Continued modernization and
improvement of the Airport’s facilities is critical to enhancing customer
satisfaction, maintaining consistent passenger levels, and attracting airlines
and ensuring that they continue to see Long Beach as a destination.
Figure 1.
Airport fees are reinvested into airport operations and improvements,
impacting passengers’ experience and contributing to the Long Beach
economy
Fees Assessed by Long Beach Airport
Three types of airline fees and a car-rental charge are included in this audit:
• Landing Fees – Charged to the airline on each landing of commercial
aircraft carrying persons or cargo.
Airline fees and
customer facility
charges are
reinvested into
the Airport.
Airline fees
affect airport
operations,
airport
improvements,
and passenger
satisfaction.
The Airport has a
positive impact on
Long Beach’s local
economy.
4
• Gate Use Fees – Charged to the airline on each aircraft using the
terminal building apron for enplanement or deplanement of
passengers or cargo.
• Overnight Aircraft Parking Fees – Charged to the airline for any
aircraft parked on the terminal building apron overnight.
• Customer Facility Charges – Assessed by the rental car companies
and paid by car rental customers. These fees are remitted to the
Airport and can be used to construct consolidated car rental facilities,
and other car-rental related facility improvements, which in turn
enhance the experience for passengers who rent a car at the Airport.
During the audit scope of October 2015 through March 2019, airline fees
amounted to $41.8 million and customer facility charges amounted to $6.3
million. In total, airline fees and customer facility charges revenue amounted
to approximately one-third (33%) of the Airport’s annual operating revenue.
Long Beach Airport’s Fee Management
Airlines submit a monthly report of their airline fees owed to the Airport and
remit payment for the associated fees. According to expected practice,
Airport Accounting should independently reconcile the airline fees on an
annual basis using independent third-party data to ensure that the self-
reported fees are accurate and complete. Airline fees reported by the airlines
and reconciled by the Airport should be based on the following formula:
Figure 2.
Landings, gate use, or overnight parking is multiplied by aircraft weight and
approved rates to arrive at the total amount due to the Airport
Car rental companies also self-report customer facility charges in a monthly
report and pay a set rate of $10 per each car rental transaction. There is
currently no independent data source to verify the accuracy of these car
rental payments. Unlike the availability of third-party airline data to the Airport,
there is no third-party rental car data and, therefore, the Airport cannot
perform an independent reconciliation of the customer facility charge fees. In
our benchmark analysis, we found that other airports also do not have access
to third-party data and, thus, do not perform fee reconciliations. However,
both the Reno and Spokane airports utilize audits of the car rental companies
to confirm rental car transactions and fees owed to the airports.
Landing, gate use,
overnight aircraft
parking fees, and
customer facility
charges make up
33% of the Airport’s
annual operating
revenue.
5
II. Findings & Recommendations
The findings described below are related to the Airport’s management of
airline fees and customer facility charges. Many of the issues can be
remedied through the creation and enforcement of clear policies requiring the
consistent performance of procedures to effectively manage such fees.
Additionally, this audit found that contract terms are not always enforced and
that they can be made more consistent for airlines and for car rental
companies. We believe that the audit recommendations are likely to involve
upfront costs in the form of reallocation of staff time to create written policies
and procedures, but minimal ongoing costs once clear protocols are
established and being followed.
Finding #1: Reconciliations of Airport fees are not performed
consistently or effectively, while reconciliations of rental
car charges are not performed. The audit identified
missed airline fee revenues but did not identify any
unpaid car rental charges.
To ensure that the self-reported airline fees received by the Airport were
accurate, this audit reconciled both airline fees and customer facility charge
fees that should have been paid during the audit scope of October 2015 –
March 2019. Our reconciliations consisted of comparing airlines’ self-reported
fees versus a re-calculation of fees based on third-party data of each airline’s
activity level from the Airport Noise and Operations Monitoring System (Noise
System, described below). We also reconciled car rental companies’ self-
reported fees versus car rental company transaction data. We did not identify
any significant differences between the revenues reported by car rental
companies and the re-calculated amounts.
The Airport utilizes the Noise System to reconcile airline reported revenues.
The Noise System’s primary use is to provide the Airport with noise activity
data to enforce the City’s noise ordinance. The System contains airline
activity data such as aircraft types and landing times for each aircraft, making
it a useful resource in conducting airline revenue reconciliations. Being able
to use the Noise System data for reconciliation purposes is a secondary
benefit of the system.
Our reconciliation was conducted using such Noise System data and found
that the reconciliation method used by the Airport is incomplete and flawed
because the Airport’s calculation does not include all airline activity that
should be included in their calculation of fees. This means that any errors
with the portion of airline activity that is not included in the Airport’s
calculation are undetectable by the reconciliation (an incorrect rate paid on
that activity, for example). Moreover, the reconciliation does not include
charter airline data, does not include a verification of aircraft weights, and
does not include a thorough validation of Noise System data.
Auditors did not
identify any missing
car rental charges.
6
Between October 2015 – March 2019, the Airport did not consistently
reconcile airline fees. During the audit period, only calendar year 2018 was
fully reconciled. The Airport partially reconciled calendar year 2017 but did
not finalize the reconciliation. In total, the airport identified and collected an
additional $35,257 in airline fees for 2018 and identified $23,592 for calendar
year 2017 which was not collected because the reconciliation was not
finalized. See amounts fully or partially reconciled by the Airport below:
Figure 3.
The Airport identified $58,849 through its reconciliations, of which $35,257 has
been collected and $23,592 remains outstanding
The City Auditor’s Office (CAO) reconciled airline revenues for the entire
audit scope period to confirm that the Airport’s reconciliation was accurate
and to identify outstanding revenues for the years that the Airport did not
reconcile. Figure 4 below shows an additional $49,235 identified by the City
Auditor’s Office in addition to the $23,592 identified by the Airport that was
not collected, resulting in a total of $72,827 owed to the Airport for the audit
period
1
.
Figure 4.
Combined, Airport and CAO reconciliations identified $72,827 in airline fees
owed
The uncollected $72,827 is 0.17% of the total $41.8M collected during the
entire audit period. While the uncollected amount represents a very small
fraction of the total amount collected during the audit period, we conduct our
audits based on the internal audit industry’s definition of materiality, and the
understanding that materiality can be quantitative or qualitative and should
not be necessarily determined by meeting a set or arbitrary dollar threshold.
1
See Appendix A for more information regarding owed revenues and specific examples regarding issues causing
the underpaid amounts.
Combined, Airport
and CAO
reconciliations
identified $72,827 in
airline fees owed.
7
In our audits, we assess materiality and significance for a variety of matters
and risk areas that often do not have a quantifiable cost to their impact,
including those regarding operational efficiency and effectiveness,
safeguarding assets, customer service, public perception, service continuity,
and compliance with laws and regulations.
Within this context, we raise these audit findings because: 1) these fees are
self-reported by the airlines and are more prone to errors; and 2) more
importantly, the uncollected amounts highlight ineffectiveness and
inconsistency in the Airport’s fee-collection process which must be addressed
to ensure accurate revenue collection. The audit concluded that the $72,827
in airline fees owed were the result of a) a lack of a written policy and
procedures document to ensure that reconciliation-related procedures are
completed, and b) a reconciliation method that is incomplete and flawed
because it does not ensure that all the calculation inputs are correct.
A. The Airport lacks clear, written policies and procedures on
revenue reconciliations. As a result, the Airport is not completing
reconciliations consistently or effectively.
As a best practice, reconciliations of expected revenue and actual revenue
received should be conducted on a regular basis. Timely and regular
reconciliations ensure that any differences are addressed promptly. A
benchmark conducted during this audit also found that three other similarly-
sized airports - Albany, Reno, and Spokane - are reconciling their airline
revenues either monthly or annually. Two airports – Boise and Ontario – do
not perform a reconciliation beyond verifying that reported revenues are
received.
While the Airport acknowledges the need for revenue reconciliations, the
Airport currently does not have written policies and procedures surrounding
airline and car rental revenue reconciliations to ensure they are completed
accurately and consistently. Written policies and procedures are
management best practices. They ensure that organizations operate
effectively by providing guidance, instruction, and accountability to staff on
their responsibilities for day-to-day operations, and by saving the organization
time and resources and streamlining internal processes. The audit found that
Airport staff, operating without written policies, do not always complete
necessary reconciliation-related procedures:
• The Airport does not complete all airline revenue reconciliations.
• The Airport does not regularly update its overnight aircraft parking
records.
• Airport Accounting staff do not obtain necessary data needed for
annual reconciliations.
• Airport staff do not always identify errors in the reports submitted by
the airlines.
• The Airport does not require standardized reports from all airlines.
The Airport does not
have written policies
and procedures to
ensure
reconciliations are
completed correctly.
8
• The Airport does not reconcile customer facility charge fees due to the
lack of third-party car rental transaction data.
Our benchmark identified one similar airport that is following the best practice
of having policies and procedures relating to fee reconciliations in place.
Given the lapses identified, it is important that the Airport also adopt this best
practice.
The Airport does not complete all airline revenue reconciliations.
Without any specific documents requiring reconciliations of airline revenues
and customer facility charges, reconciliations have not always been
performed for airline fees and have never been done for customer facility
charge revenues. During the period audited, only airline fees for calendar
year 2018 were fully reconciled by the Airport. Calendar year 2017 was
partially reconciled, but the reconciliation was not finalized.
Figure 5.
Airport staff only fully reconciled 2018 airline fee revenue which represents
only a fraction of all revenue that should have been reconciled for the audit
period
Prior to 10/1/2015, airline revenues were last reconciled for calendar year
2013. Therefore, there may be additional underpaid fees not identified
between January 2014 - September 2015 that this audit does not capture.
Airport staff attributed the lack of reconciliations to staff turnover and
understaffing. In 2019, the Airport assigned a staff member to retroactively
complete the 2018 reconciliation, but the staff member transferred to another
department within the year, leaving the Airport without anyone assigned or
properly trained to complete the reconciliations, including the 2017
reconciliation which was in progress. This situation left the Airport with neither
staff trained to complete the reconciliations, nor written guidelines for
remaining staff to perform the task. Our benchmark shows that reconciliations
are a manual process not just at Long Beach Airport, but also at other
airports. To ensure that reconciliations are completed annually moving
forward, the Airport must assign and train staff as backup in case of future
turnover.
The Airport does not regularly update its overnight aircraft
parking records.
Airlines that park their aircraft at the terminal building apron overnight pay
overnight parking fees. Airport Operations staff conduct two daily walk-
throughs of the Airport’s ramp area and record a count of all the aircraft
parked overnight. Airport Accounting receives these daily logs and is
Of the last 84
months (2014 -
2020), only 12
months of airline
fees were fully
reconciled. There
may be additional
fees owed for years
not reconciled.
9
expected to enter the data into a monthly spreadsheet to reconcile against
the airlines’ self-reported overnight parking counts.
According to Airport Accounting, overnight aircraft parking spreadsheets are
to be updated monthly or quarterly and submitted to a supervisor for review.
However, this audit found that the monthly overnight aircraft parking
spreadsheets were not updated by Airport Accounting staff for the period of
January 2019 through December 2019. As of February 2020, the monthly
overnight aircraft parking spreadsheets had not been updated for the months
of January 2019 through December 2019. This extended period when
records were not updated demonstrates the need for policies and procedures
to hold staff accountable for certain tasks and procedures. Correct airline fee
reconciliations depend on accurate and timely overnight aircraft parking
spreadsheets; otherwise, potential revenues to the City could be lost, and the
reconciliation process could be lengthened if the data requires correction.
Airport Accounting staff do not obtain necessary data needed for
annual reconciliations.
Data from the Noise System is a key component of the annual reconciliations.
The Airport currently uses the Noise System to monitor aircraft noise levels
according to the City’s noise ordinance and has also adopted the Noise
System as the third-party data source for airline fee reconciliations. The
Noise System tracks airline landings, aircraft type, and landing time.
To complete the reconciliations, Airport Accounting staff must obtain the data
from the Airport’s Noise Office. However, the Noise System data had not
been obtained by Airport Accounting staff after 2013. The Airport staff cited
the absence of this data as one of the reasons that the reconciliations for
2014–2017 were not completed. Per the Airport Noise Office, the data for the
years in question was available. According to the Airport’s Noise Office, noise
data may have stopped being provided to Accounting after 2013 because of
changes in management which may have led to gaps in communication
between Airport Noise and Airport Accounting. Airport Accounting has stated
that the Noise System data had some errors and therefore the reliability of
the data was being assessed. Regardless of the cause, policies and
procedures requiring that staff request, verify, and provide the Noise System
data can remedy this issue.
Airport staff do not always capture errors in the reports submitted
by the airlines.
When the Airport receives the airlines’ monthly revenue reports, staff review
the mathematical accuracy of the payment received to ensure that when
multiplied, the count of airline activity (e.g. landings, gate use, and overnight
aircraft parking), the rate paid, and the aircraft weight equal the dollar amount
paid by the airline. During this process, fee rates paid by the airlines should
be reviewed to ensure they correspond with the rates applicable for the
month being paid, given that rates may change annually or semi-annually
with the approval of City Council.
Overnight aircraft
parking records
were not regularly
updated. Outdated,
inaccurate data can
cause errors in
reconciliation.
10
This audit found that in 2017, there were instances where airlines applied an
incorrect rate when reporting fees owed, and the Airport did not catch the
error. For example, JetBlue used an incorrect mid-year adjusted rate of $9.05
for nighttime landings between May and September of 2017. The City
Council-approved fee for that time period was $10.06. The use of incorrect
rates by JetBlue resulted in a $23,951 underpayment for the five-month
period during which the incorrect rate was used.
Given the significant difference that an incorrect rate can yield, it is critical
that there are clear guidelines requiring staff verification of rates used by the
airlines to ensure they match City Council-approved rates. This requirement,
as well as a verification of all other components of the payment calculation,
should be included in written policy and procedures to ensure that these
errors are consistently detected.
In our benchmarking analysis, we found that the five airports that responded
to our survey did not employ technology solutions that would automatically
detect errors in fee reporting and calculations. Reconciliations were generally
manually performed.
The Airport does not require standardized reports from all
airlines.
The Airport receives the airlines’ monthly revenue reports that detail the
airline fees owed by each airline. The benchmark conducted during this audit
found that three other airports (Albany, Boise, and Reno) require that airlines
use standardized revenue reports. The Long Beach Airport did not require
that all airlines use the same standardized reporting template and some
airlines are using a template of their own. One airline that is using its own
template is SkyWest/Delta. SkyWest/Delta’s template does not
separate daytime and nighttime landings, which incur different rates, resulting
in inaccurate fee reporting. SkyWest/Delta’s report provides a count of all
their landings and calculates fees owed to the Airport based only on the lower
daytime rate. Below is an example of their reported numbers for March
2016.
Figure 6.
SkyWest/Delta needs to differentiate between daytime and nighttime landings
to ensure it pays the correct fee rates as they are only paying day rates
Airlines’ use of
incorrect landing
rates was not
detected by the
Airport, leading to
unidentified unpaid
revenues.
SkyWest/Delta
reported 120 landings
at a daytime rate of
$4.77. The Noise
System identified 12
nighttime landings
subject to the
nighttime rate of
$10.06, but they were
not identified in
SkyWest/Delta’s
report.
11
To illustrate this issue, during the month of March 2016, SkyWest/Delta
reported 120 landings with the daytime rate of $4.77, as shown above, but
the Noise System data specified 108 daytime landings and 12 nighttime
landings. The 12 nighttime landings should have been charged a higher rate
of $10.06, which is more than double the daytime fees the airline actually
paid. In total, the use of the incorrect rate resulted in $4,686 underpaid by
SkyWest/Delta during March 2016.
If the Airport had required all airlines to use a template separating daytime
and nighttime landings, the SkyWest/Delta reporting error would have likely
been prevented. A report template that separates daytime and nighttime
flights would provide guidance for the airlines and would set an expectation
that flights are to be separated appropriately by time of day. This issue was
not identified by the Airport because the 2015 reconciliation was not yet
performed. An additional benefit of standardized reporting is increased Airport
Accounting efficiency in performing annual reconciliations, as the
standardized reporting would clearly delineate daytime versus nighttime
landings by each individual airline. As a result, it is important that airlines are
required to utilize standardized reports and that this requirement is included
in the Airport’s written policies and procedures.
The Airport does not reconcile customer facility charge fees due
to the lack of third-party car rental transaction data.
Per California law, car rental companies are responsible for collecting $10 per
car rental contract and reporting and remitting that revenue to the Airport on a
monthly basis. At the Airport, car rental companies submit monthly reports
that detail the total number of car rental transactions for the reporting month
multiplied by the $10 rate.
The Airport currently does not have a third-party data system that can be
used to verify that the transaction count reported by the car rental companies
is accurate. In the absence of such third-party data, which appears to be
common across airports as revealed by our benchmark analysis, the Airport
has relied on the car rental companies to report the customer facility charge
fees accurately. For this reason, according to Airport staff, the Airport does
not reconcile these fees.
However, the Airport has the contractual right to request transaction data to
ensure that the payment remitted to the Airport is supported, but the Airport
has not historically requested this information. In the absence of third-party
data, requesting the car rental companies’ transaction data for reconciliation
purposes can give the Airport some level of confidence that the transaction
count and payment for those transactions is, at a minimum, supported.
To verify customer facility charge revenues remitted to the Airport, this audit
reconciled three months’ worth of customer facility charge transaction
records from the major car rental companies operating at the Airport. The
Misreported data
from
SkyWest/Delta
was undetected
due to the
absence of
standardized
revenue reports.
Customer facility
charge revenue
reconciliations can
increase
transparency into
car rental
operations and
revenue reporting.
12
reconciliations did not find major discrepancies; however, the reconciliations
did identify some areas for improvement. For example, reconciliations
for Alamo, Enterprise, and National resulted in these companies overpaying
$960 in customer facility charges revenue during the review period. Company
representatives explained the $960 difference as transaction adjustments
made outside of their point-of-sales system, resulting in revenue remitted to
the Airport that is not reflected in transaction data. This practice would not
have been uncovered without reconciliation.
Airport staff indicated that there is no incentive for car rental companies
to improperly report customer facility charges, because the revenue is
reinvested into facility improvements beneficial to them. However, conducting
revenue reconciliations is a best practice and helps identify and correct any
issues that may otherwise go unnoticed. Per the City’s commercial use
permits and contracts with car rental companies, monthly reports submitted
by car rental companies must show the business transacted and other data
as may be required by the Airport. As such, the Airport has the right to
request more detailed transaction information for the completion of CFC
reconciliations. It is important that the Airport begins requesting more detailed
transaction data and utilizing this data for its reconciliation. The Airport should
also include this requirement into their policies and procedures to ensure that
this task is completed.
Alternatively, the Airport may require that the car rental companies submit
copies of financial audits specific to CFCs completed by an independent
third-party. Per the Airport, car rental companies are audited, thereby
mitigating the risk of financial misstatements. Requesting that such audits are
submitted to the Airport provides assurance that revenues have been
properly reported to the Airport. Our benchmark found that two other airports
(Reno and Spokane) use audits of their car rental companies to verify the
revenues reported by the car rental companies.
1.1 Create policies and procedures that assign tasks and
responsibilities to specific individuals in the area of airline fee
management. Policies and procedures should include the
following:
• Airline revenue reconciliations must be completed
annually.
• Airport Accounting must compile overnight aircraft
parking records on a monthly basis.
• Noise System data used in the reconciliations must
be obtained annually.
• Fee rates and other payment calculation inputs must
be verified when the monthly revenue reports are
received and during the reconciliation process.
• Require that airlines utilize standard reporting
templates that separate daytime and nighttime
Recommendations
13
landings.
1.2 Create policies and procedures assigning tasks and
responsibilities to specific individuals in the area of customer
facility charge revenue. Policies and procedures should include
at least one of following:
• Customer facility charge transactions records should
be requested from car rental companies annually. The
Airport should complete an annual reconciliation of
transaction reports requested and revenues received.
• The Airport should request and confirm that an
independent audit of car rental companies was
performed which verifies that CFC revenues have
been reported accurately.
B. The method used to reconcile airline fee revenue is flawed.
When a revenue reconciliation is conducted, it is important that the
reconciliation includes all required data inputs and that the data is accurate.
When working with data, it is also best practice to perform data quality
reviews to ensure that all data used in an analysis is accurate and complete
to yield reconciliation results that are reliable and correct.
In addition to finding that revenue reconciliations are not regularly performed,
this audit found that the annual airline revenue reconciliation does not take
into account all necessary factors to ensure that all outstanding revenues
owed by the airlines are captured. The current reconciliation process:
• Does not analyze all airline activity and, therefore, potentially
miscalculates additional fees owed,
• Does not include revenues from charter airlines,
• Does not include a review of reported aircraft weights, and
• Does not include a thorough validation of Noise System data.
The annual reconciliation does not analyze all airline activity and,
therefore, potentially miscalculates additional fees owed.
The annual reconciliation identifies differences between the self-reported
airline activity counts and the counts observed in the Noise System and in the
monthly overnight parking spreadsheets. The annual reconciliation then
determines additional revenues due based only on any unreported airline
activity. The reconciliation is flawed and incomplete because it does not take
into consideration that there may be errors in the information and revenue
reported by the airlines’ resulting from the use of incorrect fee rates or aircraft
weights, both of which are integral components to the airline fee calculation.
Figure 6 below is a visual representation of a fee calculation error that may
occur with this incomplete method. If the Noise System captured 5 landings,
The reconciliation
does not verify all
actual airline
activity counts to
ensure all revenue
has been received.
14
but the airline only reported 2 landings, the reconciliation would only identify
additional fees owed on 3 landings that remain unpaid by the airline (5 Noise
System landings minus 2 reported landings equals 3 outstanding landings). If
the airline used the incorrect rate for the 2 landings they reported, this
reconciliation would not identify additional money owed for those 2 landings.
Figure 7.
Airport’s reconciliation method only captures a portion of additional revenues
owed by airlines because it only considers a portion of all landings, gate uses,
and aircraft parked overnight
In the example above, the airline used a landing rate of $10 rather than the
accurate $11 rate. The current reconciliation method would capture $33 in
additional fees for the 3 unreported landings using the $11 rate. The correct
method would capture $35 in additional fees, because it calculates all fees
expected based on the correct $11 rate and subtracts amounts already
reported by the airline ($55 - $20 = $35). A correct reconciliation results in an
additional $2 for the Airport.
The example above is a demonstration of the issue on a small scale. The
impact of this method, however, can be much larger. For example, JetBlue
reported an incorrect rate of $9.05 per nighttime landing for the period of May
2017 – September 2017, instead of the actual rate of $10.06. The Airport’s
reconciliation method did not capture additional money on the landings
already reported by the airline because it only calculated additional revenues
for any unreported activity rather than applying the correct landing rate to all
the airline activity captured by the Noise system. This flaw in the
reconciliation method resulted in not identifying an additional $23,951 in
underpaid revenue for this issue alone.
The reconciliation
method used by the
Airport is flawed
and under-
calculates the
money owed by
airlines.
15
For a complete and correct reconciliation, the Airport’s process should also
compare recalculated revenue amounts against revenues actually deposited
in the City’s bank account. While Airport Accounting does perform verification
of airline fee revenues deposited into the City’s bank account, this process is
not incorporated in the reconciliation, which would ensure that all revenues
are reported and received accurately.
The annual reconciliation does not include revenues from charter
airlines.
Charter airlines are smaller airlines that do not have regularly scheduled
flights. These airlines are also subject to landing, gate use, and overnight
parking fees that the larger airlines pay. While these airlines are subject to
fees, they are not currently included in the Airport’s annual reconciliation.
Between October 2015 and December 2016, charter airlines reported a total
airline fee amount of $13,380. This audit reconciled some charter airline
revenues and found reporting issues, such as differences in landing counts,
gate use, and remain overnight aircraft parking counts. Airport staff has the
ability to obtain and use Noise System landing counts for these
airlines. If staff is reconciling airline revenue, charter airline revenue should
also be included to ensure completeness.
The annual reconciliation does not include a review of reported
aircraft weights.
Aircraft maximum landing weights are a key component in calculating the
airline fees owed to the Airport, as most airline fees are based on the weight
of the aircraft. The annual reconciliations do not currently include a
verification of aircraft weights to ensure that the weights reported by the
airlines are accurate.
Per our benchmark, two other airports rely on electronic systems that
automatically identify aircraft weights to be used for revenue reconciliations,
thus ensuring that the aircraft weights are accurate. The Airport does not
have an electronic system that provides them with this level of detail. While
the Airport has access to third-party information guides
2
that provide the
certified landing weight of different aircraft types and models, it does not use
the guides to verify aircraft weights. While our audit did not identify any
material differences in the airline-reported aircraft weights, using the third-
party guides to ensure the accuracy of weights reported is important because
the weight is a key component of the fees paid by the airlines.
2
This audit utilized the Burns & McDonnell guide titled “Aircraft Characteristics”, 12
th
Edition. A website and cell
phone application are also available and can be found here: https://info.burnsmcd.com/aircraft-characteristics-
app.
Reconciliations
must include a
comparison of
recalculated
revenues and
revenue received in
the bank.
The Airport can use
third-party data
guides to verify
aircraft weights for
reconciliation
purposes.
16
The annual reconciliation does not include a thorough validation
of Noise System data.
The Airport currently uses the Noise System as the third-party data source for
airline fee reconciliations. The benchmark comparison found that only one
other airport is using a third-party system to verify self-reported data from
airlines. With the Noise System, the Airport has a valuable resource.
However, it must ensure that the data captured by the system is as complete
and accurate as possible.
Testing data accuracy before relying on it for any analysis or determinations,
such as fee calculations, is a best practice. The U.S. Government
Accountability Office (GAO) states that data tests can include checking
missing data, checking for duplicate records, and testing for relationships
between data elements such as patterns in the data.
While the Airport conducts some procedures to ensure data completeness,
our review, which incorporated the tests recommended by U.S. GAO, found
that some inconsistencies remained in the data that was used for the
reconciliations. For example:
a. There were 13 instances in which aircraft tail numbers, a unique
code used to identify each and every registered aircraft, were
missing in the Noise System data.
b. There were 8 instances in which an aircraft’s arrival or departure
was missing (i.e., an aircraft was identified in the Noise System
as having landed at the Airport and never departing and vice
versa).
c. There were 6 instances in which a single aircraft tail number was
associated with multiple aircraft types.
These data issues are immaterial and minimal in comparison to 35,000 data
records contained within the Noise System for calendar year 2018
only. However, for reconciliation purposes, it is important that
Airport Accounting conduct more thorough reviews of data completeness to
ensure that system data is as accurate as possible and that any issues with
the data are addressed promptly.
1.3 Revise the reconciliation process to include all counts of
landings, gate use, and overnight aircraft parking reported by
airlines. The reconciliation should also compare expected
revenues against actual revenues deposited into the City’s bank
account.
1.4 Ensure that reconciliation inputs are verified. This includes the
use of proper rates by the airlines and the verification of aircraft
The Noise System is
a valuable resource
but must be
periodically
reviewed for data
consistency and
accuracy.
Recommendations
17
weights based on an independent data source.
1.5 Include charter airlines in the airline revenue reconciliation.
1.6 Have Airport Accounting annually review Noise System data to
ensure that the data used in the reconciliations is accurate.
Finding #2: The Airport lacks strong contract management
practices, leading to unenforced contract terms.
Our audit reviewed all airline agreements and car rental agreements and
commercial use permits (CUPs). We assessed terms regarding fees that
companies are required to pay to the Airport. We found that there are
contract and CUP terms that are not reflective of current practices
surrounding airline fees and customer facility charge fees. We also found that
contract terms are not always consistent across similar airline agreements
and car rental agreements/CUPs.
One contract term that is not enforced is late fees for either airlines or car
rental companies. Airline contracts are grouped into three different
categories: regular passenger airlines such as Southwest Airlines and
American Airlines, cargo airlines such as UPS and FedEx, and charter
airlines such as Miami Airlines. Late fees per airline category are listed below:
Figure 8.
Late fees vary across different airline types
Car rental companies fall into two different categories – larger companies
housed within the Airport (e.g. Hertz, Alamo) who have a concessions
contract with the Airport and smaller companies outside of the Airport (e.g.
Airport Van Rentals, Allied Rent-A-Car) who have a commercial use permit
with the Airport. Late fees for the different types of car rental companies are
listed below:
Figure 9.
Late fees vary across car rental companies with different contract types
18
In a three-month sample period reviewed, 4 of 18 airline payments were late
3
;
however, no late charges were assessed or paid on these late payments. For
car rental companies, 3 of 19 payments were late
4
and were also not charged
late fees.
One car rental company payment in the amount of $33,720 was overdue by
approximately 10 months. The Airport noted that the payment was lost in the
mail, which was resolved by the car rental company reissuing the check.
While checks may occasionally be lost, it is important that payments do not
take this long to be submitted.
Airport staff indicated that the late fees are not enforced because missed late
fee revenue would not offset the administrative costs associated with
enforcement efforts. However, the Airport missed out on 10-months’ worth of
late fees aimed to recoup interest revenue that would have been earned from
investment of these funds. Enforcing late fees holds companies accountable
for timely submitting their payments, and it also ensures that the Airport earns
some of the revenue that it would have earned in interest revenue had the
payment been received on time.
As observed in the contract terms, late fees are not standardized across the
companies doing business with the Airport. Inconsistencies in contract
language make enforcement more difficult in all areas, including enforcement
of late fees. Other inconsistencies were also noted in areas such as dispute
resolution, record retention, and reports due to the Airport from the airlines
5
.
While some differences in contractual language are expected due to
differences in the type of operations in which each airline and car rental
company engages, contract best practices call for contract documents to be
as consistent as possible in substance and form. Inconsistencies may result
in disagreements or contradictory contractual obligations for individuals
conducting similar operations. Consistent terms that are easier to enforce,
moreover, may help reduce the time that staff spend on contract
enforcement.
2.1 Ensure that all contract stipulations are followed, including
enforcement of late fees.
2.2 Work with City Purchasing to ensure consistency among airline
contracts and car rental company contracts and CUPs to help
facilitate contract enforcement.
3
The 4 late payments include: 1 Southwest payment (22 days late), 2 American Airlines payments (23 and 3 days
late), and 1 SkyWest/Delta payment (1 day late).
4
The 3 late payments include: 1 Avis payment (71 days late), and 2 Hertz payments (297 and 5 days late).
5
See Appendix B for a breakdown of other contractual terms and differences observed.
Late fees were not
enforced on late
payments. The City
loses interest
revenue when
payments are late.
Recommendations
More consistent
contract terms
across similar
agreement types
helps facilitate
enforcement.
19
III. Objective, Scope & Methodology
The objective of this audit was to assess whether the Long Beach Airport is
effectively managing airline fees and customer facility charges to ensure fees
are properly assessed, collected, reconciled, and deposited in their entirety.
The audit scope covered the period of October 1, 2015 through March 31,
2019. To achieve this objective, we:
• Obtained an understanding of internal controls surrounding the collection,
recording, and management of airline fee and customer facility charge
revenues. Of the five internal control components and 17 underlying
principles, all are significant to this audit’s objective.
• Conducted interviews with Airport Administration, Accounting, and
Operations staff regarding processes surrounding airline fees and
customer facility charges.
• Reviewed Federal Aviation Administration and other legal guidelines
regarding airport fees. Assessed the Airport’s compliance with such
guidelines as it relates to setting, administering, and managing airline
fees.
• Reviewed California legal requirements regarding customer facility
charges and assessed the Airport’s compliance with such guidelines as it
relates to setting, administering, and managing customer facility charges.
• Reviewed Noise System data to assess accuracy of information.
• Assessed the effectiveness of the Airport’s airline fee reconciliation
process.
• Reconciled commercial and cargo airlines’ landing, gate use, and
overnight aircraft parking fees for the entire audit scope. Charter airline
fees were partially reconciled.
• Reconciled customer facility charges revenues from major car rental
companies at the Airport for a 3-month period.
• Benchmarked against 5 airports with similar enplanements and budgets
nationwide (Albany, Boise, Ontario, Reno, and Spokane).
• Assessed the Airport’s tracking of performance metrics and
communication related to airline fees and customer facility charges with
stakeholders regarding performance tracking.
We conducted this performance audit in accordance with Generally Accepted
Government Auditing Standards (GAGAS). Those 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 the
audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on the audit
objectives.
20
IV. Appendices
Appendix A: Reconciliation Results
The audit identified a total amount of $72,827 in fees owed. This amount is
based on a combination of a reconciliation performed by audit staff and the
Airport’s reconciliation for years in which reconciliations were fully completed
or partially completed. For 2018, the Airport completed their own
reconciliation and collected or credited any amounts owed. Our audit
identified an additional owed amount of $5,375. For 2017, the Airport was in
the process of reconciling and identified $23,592 in revenue owed by the
airlines. However, the Airport did not finish the process of collecting the
additional revenue identified.
Figure 10.
Reconciliations of airline fees from October 1, 2015 through March 31, 2019
found $72,827 owed to the Airport
Amounts identified as owed through this audit’s reconciliation of airline fee
revenues for the period of October 2015 – March 2019 were caused by
the following:
1. Airlines sometimes used fee rates that differed from those approved by City
Council. For example, American Airlines and JetBlue Airlines both paid the
incorrect fee rates between October 2015 and December 2015. Airport staff
who received the payment identified the discrepancy by checking the
mathematical accuracy of the airline’s self-reports, leading to outstanding
revenues to be collected later. The use of incorrect fee rates by the airlines
was not always detected during the Airport’s check for mathematical
accuracy, as was the case in 2017 when airlines used a nighttime landing
rate of $9.05 between May – September, but the correct rate was $10.06.
2. SkyWest/Delta Airlines did not separate its daytime and nighttime landings in
its airline fee reports. While daytime and nighttime landings incur different
fees, SkyWest/Delta paid daytime landing rates for all of its flights between
October 2015 – March 2019, even though Noise System data shows that the
airline had nighttime landings. The 2018 reconciliation conducted by the
Airport detected this discrepancy. The issue went undetected for other years,
because the annual reconciliations were not conducted.
21
3. There were some differences in the number of landing, gate use, and
overnight aircraft parking counts reported by the airlines versus the Airport’s
internal records. Specifically, the Noise System provides a count of landings,
all of which result in a landing fee and a corresponding gate use charge
which is based on passengers using airport gates. Airline-reported counts
and Noise System counts did not always align. Other differences were noted
between overnight aircraft parking counts reported by the airlines and Airport
Accounting’s monthly overnight aircraft parking logs.
Appendix B: Contract Language Differences
A review of airline contracts found that contracts are inconsistent in areas that
should be applicable across all companies. For example, language regarding
landing fees and the fee calculation method (based on plane weight) is
included in permits for regular passenger airlines. However, such language
is not outlined in the UPS contract. Regular passenger airline permits also
include more robust language than contracts for cargo and charter airlines,
specifically on topics such as late payment charges, dispute resolution,
record retention requirements, and reports due to the Airport. To
illustrate these differences, below is a brief contract comparison of some of
the terms where language differs for different airlines.
22
Figure 11.
Contract terms vary in requirements and level of detail across airlines
Similar inconsistencies were identified for car rental company contracts.
There are two types of car rental company contracts – full contracts for car
rental companies housed at the Airport and commercial use permits for
companies operating outside of Airport property. While most full contracts
with companies housed at the Airport contain the same terms, the Alamo
contract does not contain language surrounding fee due dates and record
retention. For commercial use permits, the Airport Van Rental permit does
not outline a requirement for monthly business reports due to the
Airport, while monthly business reports are required in other permits. Such
differences for companies conducting similar operations may lead to more
difficult enforcement of terms since enforcement varies for different
contracts.
23
V. Management Response
Date: August 23, 2021
To: Thomas B. Modica, City Manager
From: Cynthia Guidry, Director, Long Beach Airport
For: Laura Doud, City Auditor
Subject: Fees Administration Audit
Thank you for the opportunity to comment on the Performance Audit of the Airport’s processes
to manage fees collected from the airlines and rental car operations. Our Management
Response and Action Plan is attached.
We agree with the City Auditor’s recommendations that Airport can strengthen is processes
and believe the implementation of these recommendations will improve the timely collection
and reconciliation of these airport fees. The Airport has already begun implementing the
recommendations to document its procedures.
The Airport would also like to thank the City Auditor’s Office for continuing the reconciliation of
airlines fees from 2015 to 2019. Airport had begun the reconciliation process and was able to
recapture unreported fees. However, due to staffing difficulties and the COVID-19 pandemic,
Airport was not yet able to complete its reconciliation of past fees in a timely manner. The time
and effort the City Auditor’s Office dedicated to this reconciliation has been very helpful. The
Auditor was able to reconcile an additional $72,827 of uncollected revenue representing 0.17%
of the fees collected during the audit period. While the overall amount may seem immaterial
compared to the $42 million in total fees collected by the Airport, Airport recognizes that every
dollar counts and that there is room for improvement in its reconciliation process.
Additionally, the benchmarking of other airports against the Long Beach Airport is useful in
highlighting the Airport’s performance in comparison to other airports. Of the benchmarked
airports, only one had written policies and procedures regarding fee reconciliation, and none
of the airports had technology solutions that would detect errors in their fee process. The Airport
will be able to improve its performance over the benchmarked airports by implementing the
Auditor’s recommendations and by utilizing our unique noise technology.
Please note that some of the recommendations may not be implemented immediately. Namely,
the updating of permits and contracts would need to occur at the appropriate time.
If you have any questions, please contact me at (562) 570-2605.
ATTACHMENT
CC: CHARLES PARKIN, CITY ATTORNEY
D
OUGLAS P. HAUBERT, CITY PROSECUTOR
Memorandum
Airport Fees Performance Audit
August 23, 2021
Page 2 of 2
LAURA L. DOUD, CITY AUDITOR
L
INDA F. TATUM, ASSISTANT CITY MANAGER
K
EVIN JACKSON, DEPUTY CITY MANAGER
TERESA CHANDLER, DEPUTY CITY MANAGER
R
EBECCA G. GARNER, ADMINISTRATIVE DEPUTY CITY MANAGER
M
ONIQUE DE LA GARZA, CITY CLERK
D
EPARTMENT HEADS
MANAGEMENT RESPONSE AND ACTION PLAN
Airport Department
Airport Fees Performance Audit
No. Recommendation Priority Page #
Agree or
Disagree
Responsible
Party
Action Plan /
Explanation for Disagreement
Target Date for
Implementation
1.1
Create policies and procedures that assign tasks and
responsibilities to specific individuals in the area of airline
fee management. Policies and procedures should include
the following:
• Airline revenue reconciliations must be completed
annually.
• Airport Accounting must compile overnight aircraft
parking records on a monthly basis.
• Noise System data used in the reconciliations must be
obtained annually.
• Fee rates and other payment calculation inputs must be
verified when the monthly revenue reports are received
and during the reconciliation process.
• Require that airlines utilize standard reporting templates
that separate daytime and nighttime landings.
H 13 Agree
Airport
Department
The Airport will document the existing practices and develop
formal policies to ensure consistency and timeliness in
completing these tasks. Policies and procedures to be
documented include airline revenue reconciliation, managing
overnight aircraft parking records, obtaining noise system
data, verifying fee rates monthly and developing and
implementing standard reporting templates. These efforts will
begin immediately and will be fully completed within the next
12 months as the Airport documents, refines and finalizes the
policies and procedures.
August 31, 2022
1.2
Create policies and procedures assigning tasks and
responsibilities to specific individuals in the area of
customer facility charge revenue. Policies and procedures
should include at least one of the following:
• Customer facility charge transactions records should be
requested from car rental companies annually. The Airport
should complete an annual reconciliation of transaction
reports and revenues received.
• The Airport should request and confirm that an
independent audit of car rental companies was performed
which verifies that CFC revenues have been reported
accurately.
H 13 Agree
Airport
Department
The Airport will develop policies and procedures for these
tasks. Policies and procedures will include obtaining
transaction records from car rental companies and conducting
an annual reconciliation. This is a new process that will require
the Airport to work with car rental companies and train staff.
The Airport will request and confirm that an independent audit
of car rental companies was performed which verifies that CFC
revenues have been reported accurately.
August 31, 2022
1.3
Revise the reconciliation process to include all counts of
landings, gate use, and overnight aircraft parking reported
by airlines. The reconciliation should also compare
expected revenues against actual revenues deposited into
the City’s bank account.
H 17 Agree
Airport
Department
The Airport will review the existing templates and practices for
reconciling reports, activity and payments. The Airport will
develop a new worksheet and procedures that accurately
reconciles all pieces of the transactions including all counts of
landings, gate use, and overnight aircraft parking. This action
plan will be completed after the policies and procedures are
developed.
December 31, 2022
Page 1 of 2
MANAGEMENT RESPONSE AND ACTION PLAN
Airport Department
Airport Fees Performance Audit
No. Recommendation Priority Page #
Agree or
Disagree
Responsible
Party
Action Plan /
Explanation for Disagreement
Target Date for
Implementation
1.4
Ensure that reconciliation inputs are verified. This includes
the use of proper rates by the airlines and the verification
of aircraft weights based on an independent data source.
H 17 Agree
Airport
Department
The Airport will secure an independent data sources and begin
using the data to verify inputs when performing
reconciliations. This task will be completed during the next
reconciliation process for FY21 operations.
December 31, 2021
1.5 Include charter airlines in the airline revenue reconciliation. H 17 Agree
Airport
Department
The Airport will include charter airline revenue reconciliations
in its reconciliation process.
December 31, 2021
1.6
Have Airport Accounting annually review Noise System
data to ensure that the data used in the reconciliations is
accurate.
H 17 Agree
Airport
Department
The Airport will conduct a separate reconciliation of Noise
System data from the revenue reconciliation to add assurance
in the accuracy of the data. This process will require extensive
resources and focus to ensure a proper review of noise system
data is completed. A process does not currently exist and will
need to be developed and tested before full implementation.
December 31, 2022
2.1
Ensure that all contract stipulations are followed, including
enforcement of late fees.
M 19 Agree
Airport
Department
The Airport will conduct a review of all contracts and
implement new policies and procedures to ensure that all
contract stipulations are followed, including enforcement of
late fees. This action plan will follow the timeline of new
agreements already being developed for new facilities at the
Airport.
December 31, 2022
2.2
Work with City Purchasing to ensure consistency among
airline contracts and car rental company contracts and
CUPs to help facilitate contract enforcement.
L 19 Agree
Airport
Department
The Airport will update contracts with Rental Car Companies
when practical to ensure each group of similar users have
consistent contracts to help facilitate contract enforcement.
This action plan will follow the timeline of new agreements
that will be developed when new facilities are completed at
the Airport.
December 31, 2023
Priority
Shaded areas - to be completed by the department
H – High Priority - The recommendation pertains to a serious or materially significant audit finding or control weakness. Due to the seriousness or significance of the matter, immediate
management attention and appropriate corrective action is warranted.
L – Low Priority - The recommendation pertains to an audit finding or control weakness of relatively minor significance or concern. The timing of any corrective action is left to management's
discretion.
M – Medium Priority - The recommendation pertains to a moderately significant or potentially serious audit finding or control weakness. Reasonably prompt corrective action should be taken by
management to address the matter. Recommendation should be implemented no later than six months.
Page 2 of 2
Long Beach City Auditor’s Office
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th
Floor
Long Beach, CA 90802
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