02/08/1994 Audit AUDIT REPORT
MONROE COUNTY
AIRPORT OPERATING REVENUES
February 8, 1994
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Prepared By:
Internal Audit Department
Clerk of the Circuit Court
Danny L. Kolhage, Clerk
Monroe County, Florida
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BRANCH OFFICE CLERK OF THE CIRCUIT COURT BRANCH OFFICE
3117 OVERSEAS HIGHWAY MONROE COUNTY 88820 OVERSEAS HIGHWAY
MARATHON, FLORIDA 33050 500 WHITEHEAD STREET PLANTATION KEY, FLORIDA 33070
TEL. (305) 289-6027 KEY WEST, FLORIDA 33040 TEL. (305) 852-7145
TEL. (305) 292-3550
February 8, 1994
li
The Honorable Danny L. Kolhage
Clerk of the Circuit Court
Re: Audit of Key West International Airport Operating Revenues
Dear Mr. Kolhage:
_ The Internal Audit Department has prepared an audit report concerning an audit of airport
operating revenues for Key West International Airport and Marathon Airport.
The audit was limited to a review of airport lease agreements and appropriate tests of compliance
with applicable Federal, State, and Local laws, regulations, policies, plans, and procedures. The
audit was also conducted to verify Florida Department of Revenue Sales and Use Tax
determinations and to evaluate the adequacy and effectiveness of established internal controls
related to Airport revenues.
In general, improvements are needed in established internal control policies and procedures
concerning compliance with laws and regulations, timeliness of lease executions, separation of
duties, elimination of duplicate accounting procedures, and timeliness of deposits.
The accompanying audit report is provided for your information. The audit report has been
distributed to the Board of County Commissioners, the County Administrator, the Community
Services Division, the Airport Department, and the audit firm of Kemp and Green, CPA's.
Additional copies of the report will be provided and/or distributed upon your request. Full
auditee responses to the findings presented within the report are included as exhibits at the back
of the report.
Sincerely,
9
Charles J. Mansen, Jr.
Internal Audit Director
L_ AUDIT REPORT
AIRPORT OPERATING REVENUES
TABLE OF CONTENTS
Page#'s
{
S 1 Executive Summary S 1 - S2
I. Scope and Objectives 1 - 2
II. Background 2 - 3
III. Conclusions 3 - 4
IV. Details Of Audit Findings
A. General Compliance with Federal Laws, Regulations, and
Grant Assurances 4 - 5
B. Access to Landing Area from Off-Site Location 5 - 6
•
C. East Martello Tower 6 - 7
D. Fair Market Value Rental of Non-Aeronautical Leases
of Airport Property 7 - 8
E. Standard Economic Index for Periodic Readjustment
of Rental Rates and Fees 8 - 10
F. Standard Rates and Charges 10 - 11
G. Revised Minimum Standards for Commercial Aeronautical Activities
by FBO And Other Aeronautical Service Providers
at Monroe County Airports 11 - 13
H. Rights of First Refusal Defined by FAA as Exclusive Right 14
I. Flying Club May Be A Fixed Base Operator 14 - 16
J. Aircraft Shelter Rental May Be A Fixed Base Operator 16
K. Delegation of Authority to a Fixed Base Operator 17 - 18
i
PRELIMINARY AUDIT REPORT
AIRPORT OPERATING REVENUES
TABLE OF CONTENTS
Page#'s
IV. Details Of Audit Findings:
L. Subordination of Title 18 - 19
M. Rental Rates of Several Leases Differ
From Standard Rates And Charges 19 - 20
N. Untimely Execution of Board Approved Leases 21 - 22
O. Gift Shop Gross Revenue Fees 22 - 23
P. Compliance With Lease Requirements For Periodic Rental Increases 23 - 25
Q. Billings For Additional Space 25 - 26
R. Certain Airline Rentals Are Exempt From Florida Sales Taxes 26 - 27
S. Florida Department of Revenue Sales Tax Adjustment 28 - 29
T. Deposit And Recording of Airport Revenues 29 - 31
U. Review of Airport Ledgers Maintained By OMB Airport Finance
And The Clerk's Finance Department 31 - 33
V. Segregation of Duties 33 - 34
W. Miscellaneous Billing Errors 34 - 35
V. Exhibits
A. Specific Language Required By Standard DOT Title VI Assurances Al
B. Specific Language Required By Economic Nondiscrimination
Assurance B 1
C. Specific Language Required By 49 CFR Part 27, Nondiscrimination
Assurance On The Basis Of Handicap In Programs And Activities
Receiving Or Benefiting From Federal Financial Assistance Cl
ii
!^1
PRELIMINARY AUDIT REPORT
AIRPORT OPERATING REVENUES
TABLE OF CONTENTS
Page#'s
IV. Exhibits
D. Comparison of Sample CPI Increases To National CPI
and Miami/Ft. Lauderdale CPI D 1
E. US Dept of Labor, Bureau of Labor Statistics Consumer Price Index
Miami-Fort Lauderdale, Florida El
F. Memorandum from County Administrator - Consumer Price Index Fl
G. Standard Rates and Charges Gl -G2
H. Memorandum from Clerk's Finance Director -
Timeliness of Airport Cash Receipts H1
I. County Administrator's Response I1 - I6
J. Monroe County Clerk's Response J1 - J2
K. FAA Response to Monroe County's Request for Determinations K1 -K2
L. Request for FAA Determinations Concerning Audit Findings Ll -L2
M. Opinion of FBO Attorney Concerning Consent & Estoppel M1
N. County Attorney Memorandum Concerning Special Report
On Airport Revenue Diversion by Spiegel & McDiarmid N1
O. Special Report On Airport Revenue Diversion
by Spiegel & McDiarmid 01 -
013
P. Request For County Attorney Opinion East Martello Museum Status P1
EXECUTIVE SUMMARY
AUDIT OF AIRPORT OPERATING REVENUES
I. Scope and Objectives:
A. At the request of the Clerk of the Circuit Court, the Internal Audit Department has
completed an audit of Airport Operating Revenues for Key West International and
Marathon Airports. The Internal Audit Department limited the scope of this audit to
operating revenues billed and collected for the period from October 1, 1989 through
March 31, 1993 as the audited period.
B. The audit was performed to evaluate compliance with Federal, State, and Monroe
County laws, regulations, policies and procedures and to determine whether operating
revenues are accounted for efficiently and effectively.
II. Background:
A. Airport Management is responsible for implementing or renewing airport leases or
initiating termination of Airport leases with the approval of the Board of County
Commissioners. Sign leases may be approved/executed by the County Administrator.
The Office of Management and Budget (OMB) Airport Finance Office will be assuming
the lease duties effective immediately. All leases are approved by the BOCC. The OMB
Airport Finance Office in conjunction with Airport Management monitors the collection
of Airport Operating Revenues.
B. The Office of Management & Budget (OMB) Airport Finance Office is responsible for
billing Airport tenants and monitoring the receipt of payment. The OMB Airport Finance
Office uses a computer system to record billings and collections in billing/receipt
summaries for each Airport tenant. Billing/receipt summary printouts are maintained in
an Airport ledger book. The OMB Airport Finance Office is also responsible for
forwarding collections to the Clerk's Finance Office with attached copies of related
billing invoices.
C. The Clerk's Finance Department is responsible for depositing and recording the receipt
of Airport Revenues in the proper County Accounts (Official Records). On request, the
Clerk's Finance Department provides the OMB Airport Finance Office with appropriate
financial reports.
D. The OMB Airport Finance Office uses the Clerk's Finance Department reports to
reconcile the OMB Airport Ledger to the Clerk's Official Records.
S1
EXECUTIVE SUMMARY
AUDIT OF AIRPORT OPERATING REVENUES
II. Background: (continued)
E. The Clerk's Finance Department also records billings and payments forwarded from the
OMB Airport Finance Office in a manually-posted Airport Ledger, for the purpose of
preparing monthly Accounts Receivable Aging Reports. The Clerk's Finance Department
notifies OMB Airport Finance staff of any identified discrepancies, including old
outstanding balances. The Clerk's Finance Department is in the process of converting
to a computer processing system for recording billings and collections for Airport leases.
III. Audit Conclusions:
All sample revenues billed and collected by OMB Airport Finance were traced to deposit
and recording by the Clerk's Finance Department. No material misstatements or errors were
found; however, improvement in compliance with Federal laws and regulations is needed
and other internal control weaknesses were found. No material misstatements of revenue
were found which would be a condition reportable to the FAA. However, FAA
determinations should be sought in reference to compliance questions related to certain
specific agreements.
IV. Summary of Findings:
A. In general, Airport leases are apparently not in full compliance with various Federal
laws and regulations and grant related sponsor assurances. Leases may need to be
rewritten to comply with all applicable Federal laws and regulations. Certain policies,
procedures, standards and rates may also be in non-compliance;. Non-compliance with
Federal laws and regulations could prevent the County from obtaining or keeping Federal
Financial Assistance.
B. In addition to the need to monitor changes in sales tax rules concerning Franchise Fees
(Gross Receipt Fees), County staff should review current Florida Department of Revenue
Sales and Use Tax Rules to determine which portions of leased Airport property are
exempt from Sales & Use Tax. Sales taxes were collected and remitted on rentals that
are exempt from sales taxes.
C. Various leases were not timely executed by Airport vendors. County staff should seek
earlier negotiations with vendors and/or include execution deadline clauses into leases.
D. Duties of the OMB Airport Finance Office should be segregated to separate billing,
collection, and reconciliation functions related to Airport Revenues.
S2
EXECUTIVE SUMMARY
AUDIT OF AIRPORT OPERATING REVENUES
IV. Summary of Findings: (continued)
E. The Clerk's Finance Director, Airport Management, and OMB Airport Finance Office
staff should coordinate efforts to eliminate duplicate accounting procedures performed
by both the Clerk's Finance Department and the OMB Airport Finance Office.
F. Various receipts were not timely processed, but the responsible department could not be
identified, because on documentation available during the audit, unidentifiable date
stamps or missing date stamps did not allow tracing of responsibility for delays to a
specific County department and employee.
S3
i I
I I
AUDIT REPORT
AIRPORT OPERATING REVENUES
I. Scope and Objectives:
A. At the request of the Clerk of the Circuit Court, the Internal Audit Department has
completed an audit of Airport Operating Revenues for Key West International and
Marathon Airports. The Internal Audit Department limited the scope of this audit to
operating revenues billed and collected for the period from October 1, 1989 through
March 31, 1993 as the audited period.
B. The audit was performed to evaluate compliance with Federal, State, and Monroe
County laws, regulations, policies and procedures and to determine whether operating
revenues are accounted for efficiently and effectively.
C. The Internal Audit Department examined:
1. Federal laws and regulations applicable to leases of Airport property.
2. Florida Statutes relative to collection of sales tax.
3. Florida Sales & Use Tax Rules.
4. The Monroe County Code, local ordinances, resolutions, policies, and procedures.
5. Minutes of the Monroe County Board of County Commissioners.
6. Airport department policies, procedures, standards and rates.
7. Leases of airport property for both Airports.
8. Billing and collection of Airport operating revenues and sales taxes.
9. Deposit and recording of Airport operating revenues and sales taxes.
10. Accounts receivable records.
11. Deposits in escrow.
12. Journal entries.
13. Reporting of operating revenues.
1
1
I. Scope and Objectives: (continued)
D. The following personnel were interviewed during the audit to examine the relationship
of the respective departments to revenue generating activities of the Monroe County
Airports.
1. Division Director of Community Services
2. County Attorney
3. Director of Airports
4. Marathon Airport Manager
1-I
5. Director of Management & Budget
6. Clerk's Finance Director
7. Office of Management & Budget employees
8. Clerk's Finance Department employees
II. Background:
A. All leases of Airport property must be approved by the Board of County Commissioners,
executed by the Mayor.
B. All leases of Airport property must be reviewed for legal sufficiency by the County
I
Attorney. The County Attorney is also responsible for the process of termination of
leases in default.
C. Airport Management is responsible for implementing or renewing airport leases or
L._ initiating termination of Airport leases with the approval of the Board of County
Commissioners. Sign leases may be approved/executed by the County Administrator.
The Office of Management and Budget (OMB) Airport Finance Office will be assuming
the lease duties effective immediately. All leases are approved by the BOCC. The OMB
Airport Finance Office in conjunction with Airport Management monitors the collection
of Airport Operating Revenues.
D. The Office of Management & Budget Airport Finance Office is responsible for billing
Airport tenants and monitoring the receipt of payment. The OMB Airport Finance Office
- uses a computer system to record billings and collections in billing/receipt summaries for
each Airport tenant. Billing/receipt summary printouts are maintained in an Airport
ledger book. The OMB.Airport Finance Office is also responsible for forwarding
collections to the Clerk's Finance Office with attached copies of related billing invoices.
2
it
II. Background: (continued)
E. The Clerk's Finance Department is responsible for depositing and recording the receipt
of Airport Revenues in the proper County Accounts (Official Records). On request, the
Clerk's Finance Department provides the OMB Airport Finance Office with appropriate
computer generated Trial Balances and detailed Revenue Sub-ledger reports.
F. The OMB Airport Finance Office uses the Clerk's Finance Department reports to
reconcile the OMB Airport Ledger to the Clerk's Official Records.
G. The Clerk's Finance Department also records billings and payments forwarded from the
OMB Airport Finance Office in a manually-posted Airport Ledger, for the purpose of
preparing monthly Accounts Receivable Aging Reports. The Clerk's Finance Department
notifies OMB Finance staff of any identified discrepancies, including old outstanding
balances. The Clerk's Finance Department is in the process of converting to a computer
processing system for recording billings and collections for Airport leases.
III. Conclusions:
All sample revenues which were billed and collected by OMB Airport Finance were traced
to deposit and recording by the Clerk's Finance Department. No material misstatements or
errors were found; however, the following weaknesses were found in the current system of
internal controls:
A. In general, Airport leases are apparently not in full compliance with various Federal
laws and regulations and grant related sponsor assurances. Leases may need to be
rewritten to comply with all applicable Federal laws and regulations. Certain policies,
- procedures, standards and rates may also be in non-compliance. Non-compliance with
Federal laws and regulations could prevent the County from obtaining or keeping Federal
Financial Assistance.
B. In addition to the need to monitor changes in sales tax rules concerning Franchise Fees
(Gross Receipt Fees), County staff should review current Florida Department of Revenue
Sales and Use Tax Rules to determine which portions of leased Airport property are
exempt from Sales & Use Tax. Sales taxes were collected and remitted on rentals that
are exempt from sales taxes.
C. Various leases were not timely executed by Airport vendors. County staff should seek
earlier negotiations with vendors and/or insert execution deadline clauses into leases.
D. Duties of the Airport Finance Office should be segregated to separate billing, receipt,
and reconciliation functions related to Airport Revenues:
3
III. Conclusions: (continued)
E. The Clerk's Finance Director, Airport Management, and OMB Airport Finance Office
staff should coordinate efforts to eliminate duplicate accounting procedures performed
by both the Clerk's Finance Department and the OMB Airport Finance Office.
F. Various receipts were not timely processed, but the responsible department could not be
identified, because on documentation available during the audit, unidentifiable date
stamps or missing date stamps did not allow tracing of responsibility for delays to a
specific County department and employee.
G. No material misstatements of revenue were found which would be a condition reportable
to the FAA. However, FAA determinations should be sought in reference to compliance
questions related to certain specific leases and agreements.
IV. Audit Findings~
__ A. General Compliance with Federal Laws, Regulations, and Grant Assurances:
Condition
1. Seventy-two Airport leases and agreements for both Key West International and
Marathon Airport were reviewed for compliance with Federal laws, regulations, and
grant related sponsor assurances. Forty-one leases were apparently not in full
compliance because of incomplete language or lack of language required by Federal
grant assurances. In reference to Civil Rights assurances, twenty-three of the reviewed
{ leases erroneously refer to 49 CFR Part 15, which relates to the Federal Tort Claims
Act. The leases should refer to 49 CFR Part 21, which relates to Effectuation Of
Title VI Of The Civil Rights Act Of 1964.
Criteria
1. Federal DOT Title VI Assurances (Civil Rights) require that all leases of premises
or agreements granting the rights to offer nonaeronautical services to the public
incorporate specific language concerning Civil Rights assurances. (See Exhibit A)
2. Federal laws, regulations, and sponsor assurances require specific language in leases
granting the rights to offer services and commodities essential to flight operations.
Language required by sponsor assurances includes:
a. General requirements of compliance with all applicable Federal laws, regulations,
executive orders, policies, guidelines and requirements as they relate to the
application, acceptance, and use of Federal funds.
b. The Federal DOT Title VI Assurance (Civil Rights). (See Exhibit A)
c. Requirements of 49 U.S.C.A. §2210(a) ECONOMIC NONDISCRIMINATION.
(See Exhibit B)
d. Requirements of 49 CFR Part 27, §27.9(a) Nondiscrimination on the Basis of
Handicap in Programs and Activities Receiving or Benefiting from Federal Financial
Assistance. (See Exhibit C)
4
A. General Compliance with Federal Laws, Regulations, and Grant Assurances:
(continued)
Criteria (continued)
3. Federal laws, regulations, and sponsor assurances require leases granting the rights
to offer aeronautical services to comply with 49 U.S.C.A. §2210(a)(2)which prohibits
exclusive rights for the use of the airport by any persons providing, or intending to
provide, aeronautical services to the public.
Effect
1. Non compliance with Federal laws, regulations, and grant assurances could prevent
Monroe County from receiving current and future Federal Financial Assistance.
Cause
1. Failure to review standard lease formats for compliance with changes in laws,
regulations, and grant assurances may have been a factor causing non-compliance.
Recommendation
1. County Management should seek the advice of the County Attorney or other legal
counsel in determining whether Airport leases conform to all applicable Federal laws,
regulations, and grant assurances.
County Administrator's / OMB Response
All leases are approved by the County Attorney for legal sufficiency prior to BOCC
approval and execution.
B. Access to Landing Area from Off-Site Location:
Condition
1. A lease agreement and an FAA Standard Protection Clause Addendum between
Monroe County and Dr. Jules Beckwitt providing access to the landing area from an
off-site location at the Marathon Airport was reported to and approved by the FAA;
however, lessee acceptance of the FAA Addendum was achieved only after numerous
communications between the County and the lessee between December 16, 1991 and
May 12, 1992.
2. Evidence of FAA approval and an executed FAA Standard Protection Clause was
F found in the County Attorney's files, but not in the Official Records or OMB Airport
Finance Office files.
3. On May 13, 1992, the County Attorney's Office notified the lessee's attorney of
County requirements for a 30 day cancellation clause in insurance certificates.
Adequate insurance certificates with a 30 cancellation clause were not provided to Risk
Management until August 9, 1993.
5
B. Access to Landing Area from Off-Site Location: (continued)
Criteria
1. FAA rules (Order 5190.6A, §6-6e.) require FAA approval of all off-site access
agreements. The FAA requires the inclusion of an FAA Standard protection clause
which was attached as an addendum to the original lease.
2. The County Attorney's copy of the lease provides for automatic cancellation should
any condition of the lease be violated andnot corrected within ten days of written
notice of the violation. The lease also provides that insurance policies must be
maintained in a form acceptable to the County.
3. Final executed leases should be filed in the Official Records kept by the Clerk and
copies should be provided to the OMB Airport Finance office.
Effect
1. County staff hours consumed in the process of bringing this lease into compliance with
Federal regulations and lease requirements were not cost-effective. Not including
County staff time consumed by other County Departments, such as Risk Management
and Airport Finance, County Attorney staff estimated that 30 hours were consumed
by research and communication concerning this lease. The current lease, which
expires on May 31, 2001, provides for annual payments from the lessee of $1,285.
Recommendation
1. County Management should require strict compliance with lease terms, including the
automatic cancellation clause.
2. The County Attorney's Office should provide the final executed copy of the lease and
FAA Addendum to the Clerk's Office for filing in the Official Records.
County Administrator's / OMB Response
As leases are being negotiated, we are striving for conformity. The County Attorney's
Office presently forwards all fully executed documents to the Clerk's Office for recording
and distribution.
C. East Martello Tower:
Condition
1. The use of the East Martello Tower as a museum may be in violation of the deed of
conveyance which contains a reverter clause which could transfer title to the property
back to the United States of America.
Criteria
1. A Deed between the United States of America and County of Monroe conveyed the
East Martello Tower to the County on March 21, 1956, with a reverter clause which
states that the property shall automatically revert to the Government pursuant to
l J Section 16 of the Federal Airport Act in the event the lands ... are not developed, or
cease to be used, for airport purposes.
6
C. East Martello Tower: (continued)
Criteria (continued)
2. According to a July 27, 1993 memorandum to the Internal Audit Department from an
Assistant County Attorney, 49 U.S. Code §2215(c)may provide for an exemption from
the reverter clause, on the grounds that the subject property is still controlled by the
United States and that the subject property is a national monument, etc.
3. According to the provisions of FAA Order 5190.6A §4-18f.(1), use of East Martello
^' as a museum may be in compliance if a fair rental value is established which will
accrue to the Airport and be available to meet airport expenses.
Recommendation
1. County Management should determine what portions of the East Martello property are
currently used for airport purposes and obtain an FAA determination on whether the
current use as a museum is acceptable.
County Administrator's / OMB Response
No portions of the East Martello Museum are currently used for airport purposes. The
County Attorney's Office has been asked to determine whether the Fort is obliged to pay
Fair Market Value [rental]for the property. Even though we agree with Attorney
Ludacer that the "museum has been in place for 50 years before the airplane was
invented", we will request the appropriate exemptions from the reverter clause as
suggested by the Internal Auditor.
Auditor's Comments
The County Attorney's response that the Fort preceded the invention of the airplane was
related to an October 4, 1993 report entitled "Special Report on Airport Revenue
Diversion" and was not directly related to comments contained within this internal audit
report. The Special Report prepared by Spiegel & McDiarmid (See Exhibit 0) was
distributed to Airport Directors and Attorneys to inform them of increased Federal
attention concerning "Airport Revenue Diversion" and "Self Sufficiency Of Airport Fees
-7 And Charges". In summary, the Federal Department of Transportation's Office of
Inspector General (IG) is currently auditing selected airports to evaluate the effectiveness
of the FAA's Airport Compliance Program. In many instances, the IG has found areas
of noncompliance where the FAA had found airports to be in compliance.
D. Fair Market Value Rental of Non-Aeronautical Leases of Airport Property:
Condition
1. Fair market value rentals were not established for several non-aeronautical leases of
Airport property at Key West International and Marathon Airports. County staff
prepared proposed budgets for Fair Market Value rental of portions of Airport property
used by the Public Works Road Department, Garages, and Animal Shelters, effective
with County Fiscal Year 1993/1994.
7
D. Fair Market Value Rental of Non-Aeronautical Leases of Airport Property:
(continued)
Criteria
, 1. Federal regulations require that fair market value must be established for non-
' aeronautical leases of airport property. According to FAA Order 5190.6A §4-18f(1),
property may not be rented at a discount to support community nonprofit organizations
or to subsidize non-airport objectives.
Effect
1. Estimates of fair market value rental on a non-profit group lease ranged from $18,000
per year according to BOCC minutes in June 1993 to $34,864 per year in April 1987.
The actual rental received on the lease is $1 per year. Estimates for fair market values
on other non-profit leases were not available during this audit; however, any rental
at less than fair market value may be a violation of Federal regulations, which could
impair the County's ability to obtain current and future Federal Financial Assistance.
Cause
1. Several leases have been granted to non-profit groups for nominal rates of $1 to $10
per year. Estimates of fair market value rental on one of the non-profit group leases
range from$18,000 per year according to BOCC minutes in June 1993 to $34,864 per
year in April 1987.
Recommendation
1. County Management should comply with Federal laws, regulations, and grant
assurances by establishing Fair Market Value rates for all leases.
2. All leases of property to non-profit groups in excess of 5 years should include
provisions for periodic renegotiation to assure that the leases are producing Fair
Market Value.
County Administrator's / OMB Response
Fair market value [rental] has been assessed and will be billed for all properties at the
Marathon Airport. Upon final resolution of the existing lawsuit at the Key West
International Airport, the same standards will be applied.
E. Standard Economic Index for Periodic Readjustment of Rental Rates and Fees:
Condition
1. In general, Monroe County Airport leases appear to require use of the National
Consumer Price Index published by the U.S. Department of Labor as a standard in
establishing periodic rental rate adjustments. Use of a recognized economic indicator
is a fair and reasonable method of periodically adjusting Airport lease rental rates and
fees; however, in actual determinations of rental increases, the CPI for the Miami-
Fort Lauderdale region was apparently used. (See Exhibit E)
8
it
E. Standard Economic Index for Periodic Readjustment of Rental Rates and Fees:
(continued)
Condition (continued)
2. Increases in Standard Rates and Charges of 10% appear to be based on a decision of
County Management to gradually implement increases in Airline Rates & Charges to
levels recommended by the Greiner Study completed in July 1992.
3. Although the CPI is used as a standard, the methodology used for applying increases
in CPI differs among the various airport leases.
a. In certain leases, the methodology requires New Rent to be determined by dividing
the New CPI by the Base CPI and multiplying the Base Rent by the result. The
New Rent and New CPI become the Base Rent and Base CPI for the next
determination period.
b. Apparently, OMB Airport Finance staff has erroneously interpreted this
_ methodology to mean CPI = % increase in CPI; therefore, New Rent was
determined by dividing the New % increase in CPI by the Base % increase in CPI
and multiplying the Base Rent by the result. The New Rent and New % increase
in CPI becomes the Base Rent and Base % increase in CPI for the next
determination period.
Criteria
1. Federal regulations (FAA Order 5190.6A §4-14d.(1)(e)) state that leases of Airport
property with a term of 5 years or more should contain an escalation provision for
periodic adjustments based on a recognized economic index.
2. According to a County Administrator's memorandum dated June 30, 1992, the Board
of County Commissioners directed that the Miami, Florida area CPI Index be used and
that the percent change in the CPI shall be based upon the annual average CPI
computation from January 1 through December 31 of the previous year.
(See Exhibit F)
3. According to 49 U.S.C.A. §2210(a)(9), an assurance is required that sponsors will
maintain a fee and rental structure for facilities and services being provided to airport
users which will make the airport as self-sustaining as possible. The approval of a
L 10% increase to gradually implement the recommendations of the Greiner Study is
intended to satisfy the requirement of making the airport self-sustaining.
4. Unless lease provisions are in conflict with Federal laws and regulations, the
methodology of specific leases should be followed in determining periodic rental rate
increases.
Effect
1. Monroe County has complied with Federal Regulations requiring escalation clauses
based on a recognized economic index; however, the County has_ not consistently
complied with either lease provisions requiring CPI increases based on the National
CPI or the Board directive requiring that the Miami, Florida area CPI Index be used.
_,
9
E. Standard Economic Index for Periodic Readjustment of Rental Rates and Fees:
(continued)
Effect (continued)
2. The County appears to be working toward complying with Federal Regulations that
require maintenance of a fee and rental structure for facilities and services being
provided to airport users, that will make the airport as self-sustaining as possible.
3. The County has not complied with the methodology specified in certain leases for the
periodic determination of rental increases.
Recommendation
1. County Management should consider revising all leases to specify the use of the
Miami/Fort Lauderdale CPI to promote efficiency in determining CPI increases.
2. County Management should use a standardized methodology for all leases to simplify
the process of determining periodic rental increases.
3. County Management should comply with provisions of leases that establish the
methodology for determining rental rate increases.
4. County Management should continue to work toward establishing a fair and reasonable
fee and rental structure for facilities and services being provided to airport users,
that will make the airport as self-sustaining as possible.
County Administrator's / OMB Response
Leases are being revised regarding CPI as they are written/renewed. We use the Miami-
Ft Lauderdale base as is the adopted standard per BOCC policy. Due to turnover in the
Airport Finance staff, miscalculations may have occurred. These errors are now
corrected as the leases come up for annual review.
F. Standard Rates and Charges:
Condition
1. Monroe County is working toward complying with Federal regulations which require
maintenance of a fee and rental structure for facilities and services being provided to
airport users which will make the airport as self-sustaining as possible. A review of
Standard Rates and Charges approved by the Airport Director for 1989 through 1993,
revealed that land rental rates for Airlines are higher than land rental rates for General
Aviation. (See Exhibit G1)
2. A review of the Greiner Study indicates that the County appears to be in compliance
with the requirement of 49 U.S.C.A. §2210(a)(9) that no part of the Federal share of
f"- an airport development, airport planning or noise compatibility project for which a
grant is made under the Airport Airway Improvement Act of 1982, the Federal Airport
Act or the Airport and Airway Development Act of 1970 shall be included in the rate
base in establishing fees, rates, and charges for users of that airport.
10
I
F. Standard Rates and Charges: (continued)
Criteria
1. According to the requirements of 49 U.S.C.A. §2210(a)(1), the sponsor will make its
airport available as an airport for public use on fair and reasonable terms and without
j ! unjust discrimination, to all types, kinds, and classes of aeronautical uses.
2. In addition, 49 U.S.C.A. §2210(a)(1)(A) requires that each air carrier using such
airport (whether as a tenant, nontenant, or subtenant of another air carrier tenant) shall
be subject to such nondiscriminatory and substantially comparable rules, regulations,
conditions, rates, fees, rentals, and other charges with respect to facilities directly and
substantially related to providing air transportation as are applicable to all such air
carriers which make similar use of such airport and which utilize similar facilities,
subject to reasonable classifications such as tenants or nontenants and signatory carriers
and nonsignatory carriers.
3. FAA Order 5190.6A §6-7.a. states that while the actual rates for use of the landing
area are a matter of negotiation, there should be no discrimination in use rates between
air carrier and general aviation using aircraft of the same type and weight.
Effect
1. Establishing different rates and charges for Airline and General Aviation use of
Airport land may be a violation of Federal Regulations prohibiting economic
discrimination. A violation of economic non-discrimination assurances could impair
j the County's ability to obtain current and future Federal Financial Assistance.
_
Recommendation
1. County Management should revise Standard Rates & Charges to establish equivalent
land use rates for Airlines and General Aviation,
or
2. County Management should seek a determination from the FAA as to whether
different land use rates for Airlines and General Aviation is a violation of Federal
Regulations.
County Administrator's / OMB Response
Standard Rates and Charges are updated on a regular basis. A Professional Service
Order (PSO) with Greiner, Inc. has been executed to accomplish this task in 1994. We
will keep the Auditor's comments in mind as we develop the new Rates and Charges.
G. Revised Minimum Standards for Commercial Aeronautical Activities by FBO And
Other Aeronautical Service Providers at Monroe County Airports:
Condition
1. Current Fixed Based Operators at both Key West International Airport and Marathon
Airport do not appear to have met the initial investments requirements of the Revised
Minimum Standards for the right to conduct Primary Services and Secondary Services.
11
l
G. Revised Minimum Standards for Commercial Aeronautical Activities by FBO And
Other Aeronautical Service Providers at Monroe County Airports: (continued)
Condition (continued)
2. Documentation to support compliance with initial investment requirements was either
not found in the OMB Airport Finance Office files or did not prove that required
investments were made.
3. County Management has requested documentation of required investments prior to the
audit, but no evidence of compliance or follow-up was found.
4. Specific lease agreements for the FBO's contain investment requirements that are in
conflict with the Revised Minimum Standards.
5. On August 4, 1989, the FAA criticized a situation in which an existing Fixed Base
Operator was selected to expand into new facilities, without being required to meet
minimum standards that were referred to in the advertisement for bids for a second
FBO. A final FAA determination was not found in the documentation available in
OMB Airport Office files at the time of this audit. An addendum to the FBO lease for
additional space was approved on April 22, 1992.
6. Two Fixed Base Operators were granted lease rights to conduct auto rental services
which is a specifically excluded activity, according to §V.C.3. of the Revised
Minimum Standards.
Criteria
1. According to §V.D.1. of the Revised Minimum Standards:
a. The minimum investment in facilities, tools, and equipment excluding aircraft to
provide Primary Services at the airport is $300,000, part of which may be satisfied
by the leasing of existing facilities, the value of which shall be determined by the
commission.
b. The minimum investment in facilities, tools, and equipment to provide Secondary
Service is an additional $300,000.
2. According to §IX. of the Revised Minimum Standards, in the event of any conflict
between the terms of these minimum standards and the provisions of any lease, the
provisions of the lease shall be controlling.
3. FAA Order 5190.6A §3-17a. states that Airport owners should be encouraged to
develop and publish minimum standards to be met by commercial operators in advance
of negotiations with any prospective tenant or operator.
4. FAA Order 5190.6A §3-17c. states that manipulating the standards solely to protect
the interest of an existing tenant is incompatible with this objective. A standard which
a tenant operator is required to meet must be uniformly applicable to all operators
seeking the same franchise privileges.
Effect
1. The County has negotiated discounted land rental rates on the premise that large initial
investments are required to operate an Fixed Base Operation and that the residual value
of such investments will eventually become property of the County at termination of
the leases.
12
G. Revised Minimum Standards for Commercial Aeronautical Activities by FBO And
Other Aeronautical Service Providers at Monroe County Airports: (continued)
Effect (continued)
2. Potential bidders for the right to conduct aeronautical services may be discouraged
from doing so because of anticipated initial investment requirements. Failure to set
minimum standards or manipulation of minimum standards to protect existing tenants
could be considered by the FAA to be a violation of Federal regulations and Economic
1_ Non-Discrimination Assurance. Such a determination by the FAA could impair the
County's ability to obtain current and future Federal Financial Assistance.
f l Cause
1. The §IX. of the Revised Minimum Standards effectively invalidates other provisions
and requirements of the Revised Minimum Standards and permits the County to
approve non-standard agreements for FBO's at Monroe County Airports.
Recommendation
1. The Revised Minimum Standards should be revised to establish actual realistic
Minimum Standards for the conduct of Aeronautical Activities at Monroe County
Airports.
2. The suggested revision should include a provision that any standards which will apply
in the selection of any Aeronautical Activity must be established and approved by the
Board of County Commissioners as a revision to the Minimum Standards prior to
advertisement for bids for such Aeronautical Activity.
3. Any Minimum Standards that apply to existing Aeronautical Activities should apply
to any proposals for additional Aeronautical Activities.
4. As a follow-up to the previous criticism from the FAA, a final.determination should
be obtained by County Management from the FAA concerning the acceptability of the
expansion of the existing FBO into new facilities. If a violation of Federal Regulations
and grant assurances is found, then the County should proceed to comply with the
requirements of the FAA Final determination.
County Administrator's / OMB Response
We agree that the Minimum Standards are in need of updating; however we also believe
that the investment requirements for FBO's are realistic. The Division Director has
reviewed all 3 FBO leases and has determined that the initial investment requirements
have been met. Documentation attesting to this fact will be placed in each FBO file.
A determination by the FAA has been made concerning the expansion of the existing FBO
at KWIA. It has determined that this is acceptable.
1 !
13
i I
H. Rights of First Refusal Defined by FAA as Exclusive Right:
Condition
1. Four leases between Monroe County and aeronautical service providers contained
rights of first refusal on any additional space that might become available. These
leases have either already been terminated or renewed, with no provision for first right
of refusal contained in the renewal leases.
Criteria
1. FAA Order 5190.6A §3-9c(2) states that if the need for additional space becomes
apparent at a later date, such space, as well as any new areas developed for the service
and support of aeronautical activities, must be made available to all qualified
proponents or bidders, including the incumbent. The advance grant of options or
preferences (including right of first refusal) on all future sites to the incumbent
enterprise must be viewed as an exclusive right.
2. FAA Order 5190.6A §3-8b states that the grant of an exclusive right to conduct an
aeronautical activity at an airport on which Federal funds have been expended is
considered a violation of Section 308(a) of the Federal Aviation Act...
Effect
1. The inclusion in leases of the right of first refusal is an advance grant of an exclusive
right, which could impair the ability of the County to obtain current and future Federal
Financial Assistance.
Recommendation
1. Current leases should be reviewed by County Management to gain assurance that no
current leases provide rights of first refusal to aeronautical service providers. Any
leases found to be in non-compliance should be amended.
2. Future leases should not contain first rights of refusal.
County Administrator's / OMB Response
No additional leases have been found to contain right of first refusal. No future leases
shall contain right of first refusal.
I. Flying Club May Be A Fixed Base Operator:
Condition
1. A lease between the County and a "Flying Club" for the right to occupy an aircraft
shelter does not contain language in the lease to protect the County's rights and powers
to access documents necessary to make a determination as to whether the "Flying
Club" is a nonprofit entity or it is an FBO masquerading as a Flying Club.
2. The lease referred to above expired on February 10, 1990 and no documentation was
found to indicate any renewal lease approved by the Board.
14
I. Flying Club May Be A Fixed Base Operator: (continued)
Criteria (continued)
1. In Appendix 5 of FAA Order 5190.6A, the FAA has provided the following
definition:
"An FBO is an individual or firm operating at an airport and providing general
aircraft services such as maintenance, storage, ground and flight instructions, etc."
2. According to FAA Order 5190.6A §3-9.g., a Flying Clubs are nonprofit entities
(corporations, associations or partnerships) organized for the express purpose of
providing its members with an aircraft or aircraft for their personal use and enjoyment
only. The ownership of the aircraft, or aircraft, must be vested in the name of the
flying club (or owned ratable by all its members). ... The airport owner has the right
to require the flying club to furnish such documents, insurance policies, and maintain
a current list of members as reasonably necessary to assure that the flying club is a
nonprofit organization rather than an FBO masquerading as a flying club.
3. The Monroe County Revised Minimum Standards at §I.H. define a Fixed Base
Operation as meaning the person(s)engaging in Primary Commercial Support Services,
at a minimum, as described in Section V.A.
4. The Monroe County Revised Minimum Standards at §VI. state that in the event a
person desires to establish a business on a Monroe County Airport which includes only
a part of the elements of primary and/or secondary commercial aeronautical support
services, excluding the sale of aviation fuel, as herein before defined, such person will
be required to negotiate a lease with the Commission upon terms, conditions, and
standards necessary for the protection of the public health, welfare, and safety.
Effect
1. The County does not currently have the ability to make a determination whether the
Flying Club is a nonprofit entity or an Fixed Base Operator.
2. The County may be in non-compliance with grant assurances requiring preservation
of rights and powers necessary to meet Obligations required by Federal Financial
Assistance.
Recommendation
1. Any lease renewal should contain language allowing the County to have access to
records necessary to make a determination that the "flying club" meets the FAA
definition of a flying club.
2. County Management should seek a determination from the FAA on whether the "flying
club" meets the FAA definition of a flying club or an FBO.
3. If the "flying club" is determined by the FAA to be an FBO, then any lease renewal
should comply with the Revised Minimum Standards.
15
I. Flying Club May Be A Fixed Base Operator: (continued)
County Administrator's / OMB Response
The FAA has determined that if the Marathon Flying Club is used for commercial
purposes, the activity would constitute an FBO. Therefore, we will continue to insert
language in their lease prohibiting commercial activity as we have in the past. It should
be noted that the recently negotiated lease with the Flying Club does contain such
language.
J. Aircraft Shelter Rental May Be A Fixed Based Operator:
Condition
1. In addition to the "Flying Club" lease, another lease between the County and Charles
Pierce allows the rental or sublease of aircraft shelter to others, with County approval.
Criteria
1. In Appendix 5 of FAA Order 5190.6A, the FAA has provided the following
definition:
a. An FBO is an individual or firm operating at an airport and providing general
aircraft services such as maintenance, storage, ground and flight instructions, etc.
2. The Monroe County Revised Minimum Standards at §I.H. define a Fixed Base
Operation as meaning the person(s)engaging in Primary Commercial Support Services,
at a minimum, as described in Section V.A. Even though Monroe County requires
detailed requirements to qualify as an FBO, the FAA apparently considers single
elements of aeronautical services as an FBO. For example, an FBO could provide
only aircraft storage or aircraft parking.
Effect
1. If the lease is determined by the FAA to be an FBO agreement, the current lease may
not be in compliance with the Revised Minimum Standards.
Recommendation
1. County Management should seek a determination from the FAA on whether
the lease meets the FAA definition of an FBO.
2. If the lease is determined by the FAA to be an FBO agreement, any lease renewal
should the lessee should comply with the requirements of the Revised Minimum
Standards.
County Administrator's / OMB Response
As in Item "I", the FAA has determined that the Pierce hangar would be an FBO by
definition if commercial activity is conducted on the premises. Therefore, commercial
activity will be prohibited as it has been in the past and any lease renewal will contain
language prohibiting such activity.
16
K. Delegation of Authority to a Fixed Base Operator:
Condition
1. The County may have improperly delegated its authority to Island City Flying Service
to negotiate an operating agreement (sublease) with two other aeronautical service
providers (Aeroplane Tours, Inc. and Air-Sea Key West, Inc.) which may be FBO's
according to FAA rules. The subleases authorized the two aeronautical service
providers to specialize in charter services, flight instruction, and airplane tours.
According to County Attorney staff, Air-Sea Key West, Inc. ceased operations. Both
sub-leases expired on September 30, 1992 and no renewal of the Aeroplane Tours, Inc.
sublease has been approved by the Board of County Commissioners as of August 12,
1993.
Criteria
1. FAA Order 5190.6A §4-2c. states that the Airport owner shall not delegate its
authority to one FBO to negotiate an operating agreement (lease) with another FBO.
2. In Appendix 5 of FAA Order 5190.6A, the FAA has provided the following
definition:
a. An FBO is an individual or firm operating at an airport and providing general
aircraft services such as maintenance, storage, ground and flight instructions, etc.
3. The Monroe County Revised Minimum Standards at §I.H. define a Fixed Base
Operation as meaning the person(s)engaging in Primary Commercial Support Services,
at a minimum, as described in Section V.A.
4. The Monroe County Revised Minimum Standards at §VI. state that in the event a
person desires to establish a business on a Monroe County Airport which includes only
a part of the elements of primary and/or secondary commercial aeronautical support
services, excluding the sale of aviation fuel, as herein before defined, such person will
be required to negotiate a lease with the Commission upon terms, conditions, and
standards necessary for the protection of the public health, welfare, and safety.
Effect
1. The County may have violated grant assurances requiring preservation of rights and
powers necessary to meet Obligations required by Federal Financial Assistance. A
determination of noncompliance by the FAA could impair the County's ability to obtain
current and future Federal Financial Assistance.
2. If the leases with the two aeronautical service providers are determined to be FBO
agreements, then the leases should be expected to conform to the same standards as
other FBO's on the Airport.
Recommendation
• 1. County Management should seek a determination from the FAA on whether Aeroplane
Tours, Inc. and Air-Sea Key West are FBO's according to the FAA.
2. If the Aeroplane Tours, Inc. sublease is determined by the FAA to be an FBO, any
agreement for the right to conduct an aeronautical service on Airport property should
be made directly between the County and Aeroplane Tours, Inc.
17
K. Delegation of Authority to a Fixed Base Operator: (continued)
Recommendation (continued)
3. If the Aeroplane Tours, Inc. sublease is determined by the FAA to be an FBO, any
agreement for the right to conduct an aeronautical service on Airport property should
comply with the requirements of the Revised Minimum Standards.
4. Any leases or agreements should contain language allowing the County to require the
same standards for the conduct of an aeronautical activity as are applicable to all other
existing FBO's.
County Administrator's / OMB Response
The FAA has determined that the sublease by Island City Flying Service to Key West
Aeroplane Tours, Inc. does not violate FAA Order 5190.6A, Paragraph 4-2C. However,
they have also determined that the sublease of a portion of the ramp to Key West
Aeroplane Tours, Inc. is considered a separate FBO. Therefore, when the Minimum
Standards are revised, we will have to exempt such activities from the standards as long
as they are a sublease portion of an existing FBO.
L. Subordination of Title:
Condition
1. The County approved a Consent& Estoppel Certificate for an FBO on June 26, 1991,
in which the County acknowledged and accepted the mortgage of the lease to a local
bank. In assurance 5 of the Consent, the County agreed with the Lender that "the
Lease shall be amended and modified ... as follows for so long as the Mortgage
securing the Loan(the "Mortgage") relating to Lessee's interest in the Lease and other
property and interests of the Lessee (the "Mortgage Premises") shall remain
outstanding of record".
2. No FAA determination was found in OMB Airport Finance Office files which would
indicate FAA approval of the Consent.
3. No evidence was found in OMB Airport Finance files to indicate that appropriate
documents were submitted to the FAA for a determination.
Criteria
1. According to FAA Order 5190.6A, §4-2d(1) states "the subordination of airport
property by mortgage, easement, or other encumbrance will normally be considered
as a transaction which would deprive the owner of the rights and powers necessary to
perform the covenants in the agreement with the Government."
2. FAA Order 5190.6A, §4-2d(1) also states "Wherever it is proposed to subsequently
encumber obligated airport property, a complete summary of the pertinent facts,
together with recommendations of the appropriate regional Airports office, should be
forwarded to the regional Airports division for determination on a case-by-case basis.
18
1
N. Untimely Execution of Board Approved Leases: (continued)
Cause (continued)
3. According to Airport Management, the airline associated with the rescinded lease
declined to execute the lease because a minimum lease requirement of fourteen
departure flights per week could not be met by the airline. Airport Management that
as a result of lease negotiations, the prospective tenant agreed to County lease
requirements and would promptly execute the lease and occupy and use the lease
premises.
Recommendation
1. County Management should seek earlier negotiations with vendors.
2. County Management should include execution deadline clauses in leases to encourage
earlier return of executed leases by the lessees.
3. Written policies and procedures should be established to provide standards for
execution of leases and cancellation for non-execution of leases.
County Administrator's / OMB Response
We will ask the County Attorney's opinion regarding deadline clauses in leases and will
proceed based on the opinion rendered. We have started a practice of calling the
vendors for signatory contact name and addressing the copies to be executed to said
contact.
O. Gift Shop Gross Revenue Fee:
Condition
1. Gift Shop Gross Revenue fees have been remitted on an annual basis to the County,
whereas the lease apparently specifies that payments are required on a monthly basis.
2. The lease provides that the gross revenues over $25,000 are subject to the fee;
however, the lease terms are ambiguous as to whether the $25,000 limitation is to be
applied on an annual or monthly basis. OMB Airport Finance has apparently
interpreted the lease terms to mean the $25,000 limitation is applied on an annual
basis.
3. The gift shop lease expired on September 30, 1992. Airport Management is currently
negotiating with the tenant concerning lease renewal.
Criteria
1. In Article III.A., the gift shop lease states in part "... the Lessee agrees to pay on or
before the 15th day of each month following the last day of each calendar month
throughout the leasehold ... 5% of gross revenues over $25,000.00 resulting from the
conducting of a Gift and Sundry Shop business ..."
2. Monroe County Administrative Instruction 2300.2.(4)A states in part "... Leases
concerning airport property must be approved by the Board of County Commissioners,
executed by the Mayor ..."
22
L. Subordination of Title: (continued)
Effect
1. The Consent may have violated FAA rules against subordination of title, which means
the County may be in noncompliance with grant assurances concerning preservation
of rights and powers.
2. Noncompliance with FAA rules and grant assurances could affect the County's ability
to obtain current and future Federal Financial Assistance.
Recommendation
1. County Management should comply with FAA regulations which require submission
of a complete summary of facts concerning proposed encumbrances of airport property.
2. No encumbrance of airport property should be approved by the County without a
determination of approval from the FAA.
County Administrator's / OMB Response
No subordination has taken place and no encumbrance has been placed on airport
property. See Letter dated October 21, 1993 from Spottswood, Spottswood and
Spottswood addressing this issue. The FAA agrees with Attorney John M. Spottswood,
Jr. and states that this does not violate any FAA regulations.
•
M. Rental Rates of Several Leases Differ From Standard Rates And Charges:
Condition
1. A review of an audit sample of seventy-six leases found several airline leases that
differ from standard rates and charges used by Monroe County Airport Management.
a. A lease between the County and Airways International for space at Key West
International Airport, approved by the Board of County Commissioners on
March 4, 1993, specified a flat annual rate of $6,900 per year for 65 square feet
of exclusive ticket counter space. This rate equates to $106.15 per square foot per
year. Standard Rates and Charges approved by Airport Management for 1993,
specify a rate of $17.68 per square foot per year for publicly exposed space.
Monthly billings have been prepared using the flat rate of $6,900 per year.
b. Two other variances from standard rates were found, but the variances appear to
be justified in that the quality of the leased premises is not equivalent to terminal
space provided to other airlines.
Criteria
1. According to the requirements of 49 U.S.C.A. §2210(a)(1), the sponsor will make its
airport available as an airport for public use on fair and reasonable terms and without
unjust discrimination, to all types, kinds, and classes of aeronautical uses.
19
M. Rental Rates of Several Leases Differ From Standard Rates And Charges:
(continued)
Criteria (continued)
2. In addition, 49 U.S.C.A. §2210(a)(1)(A) requires that each air carrier using such
airport (whether as a tenant, nontenant, or subtenant of another air carrier tenant) shall
be subject to such nondiscriminatory and substantially comparable rules, regulations,
conditions, rates, fees, rentals, and other charges with respect to facilities directly and
substantially related to providing air transportation as are applicable to all such air
carriers which make similar use of such airport and which utilize similar facilities,
subject to reasonable classifications such as tenants or nontenants and signatory carriers
and nonsignatory carriers.
Effect
1. Establishing a nonstandard and substantially non-comparable rental rate may be viewed
by the FAA as a violation of Federal regulations requiring the sponsor to make its
airport available as an airport for public use on fair and reasonable terms and without
unjust discrimination, to all types, kinds, and classes of aeronautical uses.
Cause
1. According to Airport Management, the $6,900 flat rate represents the minimum annual
rental required for the right to occupy space in the terminal building at Key West
International Airport.
Recommendation
1. Justification for the variances from Standard Rates and Charges should be documented
in Airport Finance Office files.
2. An FAA determination should be obtained to determine whether the $6,900 flat fee
is a nondiscriminatory and substantially comparable rate with respect to facilities
directly and substantially related to providing air transportation as are applicable to all
such air carriers that make similar use of such airport and which utilize similar
facilities.
County Administrator's / OMB Response
Airport Finance Office files will be updated to include justification for variances from
Standard Rates and Charges. The FAA has determined that the $6,900 flat fee "does not
appear to be discriminatory. "
20
N. Untimely Execution of Board Approved Leases:
Condition
1. Fifteen Airport leases that were approved by the Board of County Commissioners on
March 4, 1993 were not executed and returned by the lessees as of April 28, 1993.
Fourteen of the fifteen leases were renewals of leases which expired on September 30,
1992, causing the tenants to legally be tenants at suffrage until execution of the renewal
leases.
2. One of the fifteen leases was rescinded by the Board on July 7, 1993. OMB Airport
Finance staff prepared March and April 1993 billings for counter space in accordance
with the lease; however, according to Airport Management, the lessee never executed
the lease and never took possession of or used the premises. Audit review of revenue
collections indicates that the March and April billings were not paid by the lessee.
3. Executed leases covering the period from November 1989 through March 1993 were
not found in OMB Airport Finance files nor the Clerk's Finance Department for an
airline providing aeronautical services at Key West International and Marathon
Airports.
4. Two leases for an airline providing services at both Airports were not submitted to the
Board for approval until June 10, 1992, although the leases were effective beginning
October 1, 1991.
Criteria
1. Internal Audit found no written County policies concerning time limitations for
execution of leases.
2. A related policy concerning timing of renewals was found in OMB Airport Finance
records in the form of Monroe County Administrative Instruction 2300.2.(4)G, which
provides for a two-month in advance termination warning for lease renewals. The
same paragraph also provides that the Lessee will also be advised that if the Airport
Manager does not receive a timely response from him, his lease will automatically
terminate on the specified date, and steps will be taken to vacate the premises.
Effect
1. Failure to timely execute leases may subject the county to unknown liabilities and legal
ramifications.
2. Concerning the rescinded lease, Airport Management incorrectly directed Airport
Finance staff to bill the prospective tenant for March and April, even though the lease
was not executed and the premises were not occupied or used.
Cause
1. According to Airport Management, execution of the fifteen leases approved by the
Board of County Commissioners on March 4, 1993 was delayed by the Airport tenants.
Airport management also indicated that the two leases approved by the Board on
June 10, 1992 that were effective on October 1, 1992, were also delayed by an Airport
tenant.
2. No provision exists in Airport leases requiring Airport tenants to timely execute leases.
21
N. Untimely Execution of Board Approved Leases: (continued)
Cause (continued)
3. According to Airport Management, the airline associated with the rescinded lease
declined to execute the lease because a minimum lease requirement of fourteen
departure flights per week could not be met by the airline. Airport Management that
as a result of lease negotiations, the prospective tenant agreed to County lease
requirements and would promptly execute the lease and occupy and use the lease
premises.
Recommendation
1. County Management should seek earlier negotiations with vendors.
2. County Management should include execution deadline clauses in leases to encourage
earlier return of executed leases by the lessees.
3. Written policies and procedures should be established to provide standards for
execution of leases and cancellation for non-execution of leases.
County Administrator's / OMB Response
We will ask the County Attorney's opinion regarding deadline clauses in leases and will
proceed based on the opinion rendered. We have started a practice of calling the
vendors for signatory contact name and addressing the copies to be executed to said
contact.
O. Gift Shop Gross Revenue Fee:
Condition
1. Gift Shop Gross Revenue fees have been remitted on an annual basis to the County,
whereas the lease apparently specifies that payments are required on a monthly basis.
2. The lease provides that the gross revenues over $25,000 are subject to the fee;
however, the lease terms are ambiguous as to whether the $25,000 limitation is to be
applied on an annual or monthly basis. OMB Airport Finance has apparently
interpreted the lease terms to mean the $25,000 limitation is applied on an annual
_ basis.
3. The gift shop lease expired on September 30, 1992. Airport Management is currently
negotiating with the tenant concerning lease renewal.
Criteria
1. In Article III.A., the gift shop lease states in part "... the Lessee agrees to pay on or
before the 15th day of each month following the last day of each calendar month
throughout the leasehold ... 5% of gross revenues over $25,000.00 resulting from the
conducting of a Gift and Sundry Shop business ..."
2. Monroe County Administrative Instruction 2300.2.(4)A states in part "... Leases
concerning airport property must be approved by the Board of County Commissioners,
executed by the Mayor ..."
22
O. Gift Shop Gross Revenue Fee:
Criteria (continued)
3. Monroe County Administrative Instruction 2300.2.(4)G provides for a two-month in
advance termination warning for lease renewals. The same paragraph also provides
that the Lessee will also be advised that if the Airport Manager does not receive a
timely response from him, his lease will automatically terminate on the specified date,
and steps will be taken to vacate the premises.
Effect
1. Internal Audit cannot obtain assurance that gross revenue fees collected from the gift
shop are in agreement with the terms of the lease.
2. Failure to timely renew leases may subject the county to unknown liabilities and legal
ramifications.
Cause
1. No indication was found in the OMB Airport Finance "gift shop" file that the County
initiated the lease renewal process in accordance with Administrative Instruction
2300.2.
Recommendation
1. In any renewal lease the County may consider, the provision for a 5% Gross Revenues
Fee should be clarified to indicate whether the fee should be remitted on a monthly or
yearly basis and the provision for a 5% Gross Revenues Fee should be clarified to
indicate whether the $25,000 limitation applies to monthly or yearly revenues.
County Administrator's / OMB Response
The intent is for collection of gross revenue fee for full year - collected annually. This
has been clarified in the new lease agreement which was approved by the BOCC on
11/10/93.
P. Compliance With Lease Requirements For Periodic Rental Increases:
Condition
1. Internal Audit reviewed OMB Airport Finance billings/receipt summaries for on-site
rental car companies at Key West International Airport for compliance with 10%
1 biennial increase clauses contained in the leases. Lease payments received from two
on-site rental car companies do not appear to be in compliance with lease requirements
concerning periodic rental rate increases.
2. OMB Airport Finance Airport billings/receipt summaries for two Fixed Base Operators
(FBO's), one each at Key West International Airport and Marathon Airport, were
reviewed for compliance with lease requirements for periodic rental rate increases
based on the Consumer Price Index (CPI). Lease payments received from the two
FBO's are apparently not in compliance with lease requirements concerning periodic
rental rate increases based on the CPI.
23
1
P. Compliance With Lease Requirements For Periodic Rental Increases: (continued)
Criteria
1. Lease agreements establish the specific terms for periodic rental rate increases.
2. All rental payments should be agree with terms of the lease.
3. OMB Airport Finance is responsible for monitoring the billing and collection of
Airport lease revenues.
4. Monroe County Administrative Instruction 2300.2(4)E. states that "When an increase
in rental amount occurs, notice will be sent from Airport Management to Lessee with
a clear explanation as to the reason for increase to avoid questions or nonpayment of
increase amount."
Effect
1. Audit review of OMB Airport Finance billing summaries for one of the on-site rental
___ car companies indicates that 10% biennial increases were not applied as required by
the lease in 1987, 1990, and 1992. Internal Audit estimates that the current lease
payment of$229.31 is $76 lower than if all increases had been made when required.
2. Audit review of OMB Airport Finance billing/receipt summaries for the other on-site
company indicates that 10% biennial increases were not applied as required in 1990
and 1992. Internal Audit estimates that the current lease payment of $227.47 is $48
lower than if all increases had been made when required.
3. OMB Airport Finance billing/receipt summaries for the FBO at Key West International
Airport reveal that no increase in rates was applied from the period of June 1991
through December 1992. A retroactive increase for 1991 was applied in January 1992
in combination with the 1992 increase; however, as previously discussed in Audit
Finding E, the methodology for determining the increase is incorrect, resulting in
lower rates of increase than the CPI increase.
4. OMB Airport Finance billing/receipt summaries for the FBO at Marathon Airport
reveal that an increase in rates due on October 1991 was not applied until March 1992
and an increase in rates due on October 1992 was not applied as of March 31, 1993.
As previously discussed in Audit Finding E, the methodology for determining the
increase is incorrect, resulting in lower rates of increase than the CPI increase.
5. The above conditions do not have a material adverse effect on the financial statements
of Monroe County.
Cause
1. OMB Airport Finance does not prepare billings for rental car companies and FBO's.
These Airport tenants are responsible for remitting the monthly payments in accordance
with their specific leases agreements. If not reminded of periodic CPI increases by
Airport Management, Airport tenants may not comply with specific requirements of
their lease agreements and fail to increase their rents. No evidence of communication
of rental increases was found in OMB files available at the time of this audit.
24
P. Compliance With Lease Requirements For Periodic Rental Increases: (continued)
Recommendation
1. Airport Management should establish written procedures to monitor the timing and
conditions for increases in rental rates of the various Airport leases.
2. Airport Management should comply with the requirements of Administrative
Instruction 2300.2(4)E. by communicating with the tenants in writing concerning the
required increases and such communication should be in advance of the scheduled
increases.
3. Airport Management should establish written procedures to verify implementation of
the required increases.
County Administrator's / OMB Response
Car Rental leases are currently being reviewed and we are requesting a breakdown of
rent payments from the vendors. Where it is evident that a rent increase is needed, the
vendor will be billed accordingly and notified of said increase. [A] Tickler file [has been]
established for tracking of rent/fee increases.
Q. Billings For Additional Space:
Condition
1. Audit review of billing receipt summaries and lease requirements for a Fixed Base
Operator (FBO) at Key West International Airport and one at Marathon Airport
revealed that lease payments have not included rental amounts for additional space
added through leases executed subsequent to the original leases.
Criteria
1. Lease agreements establish the specific terms for rental payments.
2. All rental payments should be agree with terms of the lease.
3. OMB Airport Finance is responsible for monitoring the billing and collection of
Airport lease revenues.
4. Monroe County Administrative Instruction 2300.2(4)E. states that "When an increase
in rental amount occurs, notice will be sent from Airport Management to Lessee with
a clear explanation as to the reason for increase to avoid questions or nonpayment of
increase amount."
Effect
1. Audit review of OMB Airport Finance billing summaries for an FBO at Key West
International Airport indicates that the FBO has not remitted payments for a Fuel Farm
Lease Addendum which was effective June 5, 1991 and a Aircraft Parking Apron
Addendum which was effective April 22, 1992. Internal Audit estimates that
uncollected revenues for the Fuel Farm and Aircraft Apron were $700 for FY90/91,
$4,600 in FY91/92, and $3,400 for the period from October 1, 1992 through
March 31, 1993.
25
Q. Billings For Additional Space: (continued)
Effect (continued)
2. Audit review of OMB Airport Finance billing summaries for an FBO at Marathon
Airport indicates that the FBO has not remitted payments for an Auto Parking Lease
Addendum which was effective January 29, 1992. Internal Audit estimates that
uncollected revenues for the Auto Parking Lease Addendum were $190 for FY91/92,
and $150 for the period from October 1, 1992 through March 31, 1993.
3. The above conditions do not have a material adverse effect on the financial statements
of Monroe County.
Cause
1. OMB Airport Finance does not prepare billings for the FBO's. These Airport tenants
are responsible for remitting the monthly payments in accordance with their specific
lease agreements. If not reminded of additional rent due as a result of lease addenda,
Airport tenants may not comply with specific terms of their lease agreements and fail
to increase their rents.
Recommendation
1. Airport Management should establish written procedures to monitor the timing and
conditions for increases in rental amounts of the various Airport leases.
2. Airport Management should comply with the requirements of Administrative
Instruction 2300.2(4)E. by communicating with the tenants in writing concerning the
required increases and such communication should be in advance of the scheduled
increases.
3. Airport Management should establish written procedures to verify implementation of
the required increases.
County Administrator's / OMB Response
The FBO at Marathon is paying the correct amount. The most current addendum to [the]
lease agreement is all inclusive covering total space rented.
The FBO at KWIA has been contacted and is now paying rent for all additional space.
Rent for both of the above FBO's was raised in Fiscal Year 1993 and letters regarding
same were sent to the operators.
R. Certain Airline Rentals Are Exempt From Florida Sales Taxes:
Condition
1. The audit sample of leases included of twenty-four airline billings that included a
charge for Florida sales taxes imposed on areas described as ticket counters, baggage
handling, covered baggage, baggage make-up, and passenger areas. These areas may
qualify for an exemption from Florida Sales and Use Taxes.
26
R. Certain Airline Rentals Are Exempt From Florida Sales Taxes: (continued)
Criteria
1. Florida Department of Revenue Sales and Use Tax Rules §12A-1.070(1)(a)6 allows
an exemption from sales and use taxes for property used at an airport exclusively for
the purpose of aircraft landing or aircraft taxiing or property used by an airline for the
purpose of loading or unloading passengers or property onto or from aircraft or for
fueling aircraft.
2. In Technical Assistance Advisory TAA 91A-021 dated April 30, 1991, in response to
a taxpayer request, the Florida Department of Revenue took the position that payments
made by an airline for the use of ticket counters; ramp and apron areas; air cargo
terminals; departure lounges; baggage claim areas; and baggage make-up areas are
exempt from sales tax as real property used by an airline for the purpose of loading
and unloading passengers and property onto or from aircraft.
Effect
1. Any overpayment of sales taxes that may have been collected and remitted to the
State of Florida should be refunded to the tenant airlines and has no material effect on
the Monroe County financial statements.
Recommendation
1. County Management should seek a Technical Assistance Advisory from the
Department of Revenue about Monroe County Airport leases to determine what
portions are used by airlines for the purpose of loading and unloading passengers and
property onto or from aircraft.
2. Charges for sales taxes should be revised to conform to current Florida Department
of Revenue Sales and Use Tax Rules.
County Administrator's / OMB Response
This office has procured the current handbook governing Sales Tax and Uses from the
Department of Revenue (DOR). A phone call on 10/20/93 to Lourdes at DOR revealed
that ticket counters, storage areas and office space for airlines are all taxable. Areas
for loading and unloading of passengers is not taxable. She will be sending the most
current written documentation regarding this matter.
Auditor's Comments
The verbal response from the Department of Revenue is not consistent with technical
assistance advisories issued for other counties and municipalities throughout the State of
Florida.
The internal audit interpretation of Technical Assistance Advisory 91A-021 concerning
exemptions was verified with the Department of Revenue on February 7, 1994. In order
to assure consistency with other counties in the application of sales taxes, County
Management should apply for a technical assistance advisory for DOR interpretation of
the taxability of the various components of airport leases and subsequently, upon receipt
of the official TAA, adjust all lease charges to reflect the proper tax status.
27
S. Florida Department of Revenue Sales Tax Adjustment:
Condition
1. Florida Department of Revenue issued a Notice of Final Decision on February 19,
1993 concerning Sales and Use Taxes and Local Infrastructure Surtax collected on
rentals of Monroe County Airport properties during the period from July 1, 1985
through April 30, 1991. The combined assessment for taxes, interest, and penalties
of$15,521.15 represented taxes that were not collected and remitted to the Department
of Revenue for rentals of parking spaces by courtesy and passenger vehicles for hire,
credit given to tenants for leasehold improvements required by lease agreements, and
gift shop gross receipts. Sales tax adjustments on franchise fees collected from on-site
and off-site rental car companies were eliminated from the final adjustment.
2. OMB Airport Finance staff began collecting sales taxes on courtesy and passenger
vehicle parking fees on April 1, 1993. Taxes were not collected on fees estimated at
$1,700 for the period of May 1991 through September 1991, $5,530 for the period
from October 1991 through September 1992, and $9,900 for the period from October
1992 through March 1993. Total parking fees on which sales taxes were not collected
for the period from May 1991 through March 1993 are $17,130 and sales taxes at 7%
equal $1,199.
3. The County collected giftshop gross receipts fees for 1992 in the amount of$7,983.62
and 1991 in the amount of $7,232.75. Uncollected sales taxes on these fees total
$1,065.15.
4. Leasehold improvement credits totalling $8,200.53 were given to an Airport tenant
for the period from June 1991 through March 1993. Uncollected sales taxes on these
improvement credits total $574.37.
Criteria
1. Florida Statutes and Florida Department of Revenue Sales and Use Tax Rules provide
the criteria for collecting and remitting sales taxes.
2. Written communication between the Department of Revenue and the Monroe County
Attorney indicate the intent of the Department of Revenue to implement the collection
of sales taxes on franchise fees, guaranteed minimum payments, concession fees, and
percentage fees after the completion of the formal rule making process.
Effect
1. The conditions noted above do not have a material effect on the financial statements
of Monroe County.
Recommendation
1. County Management should ensure that all applicable sales taxes are collected and
remitted to the Florida Department of Revenue.
2. County Management should monitor changes in Florida Department of Revenue Sales
and Use Tax Rules for changes in the taxation of franchise fees and other fees and
rentals collected by the County.
28
S. Florida Department of Revenue Sales Tax Adjustment: (continued)
County Administrator's / OMB Response
All back taxes on taxi rental space [have] been paid.
T. Deposit And Recording of Airport Revenues:
Condition
1. A sample of eighty-one OMB Airport Finance collections of rentals and fees was
successfully traced from recording in the OMB Airport ledger to deposit in the bank
and proper recording in the Official County Accounts.
2. Various receipts were not timely processed, but the responsible department could not
be identified, because on documentation available during the audit, unidentifiable date
stamps or missing date stamps did not permit tracing of responsibility for delays to a
specific County department and employee.
a. In 30 of 81 sample receipts tested, airport tenants exceeded the due date for payment
of rentals and fees. Collection time for these payments ranged from 16 days to 834
days. Total processing time for posting, depositing, and recording all tested receipts
added an additional 1 to 52 days for these receipts.
b. In 52 of 81 sample receipts tested, the period of time that elapsed from collection
of rentals and fees by OMB Airport Finance to receipt of funds from OMB Airport
Finance by the Clerk's Finance Department ranged from same day receipt to a delay
of 52 days.
c. In 61 of 81 sample receipts tested, the period of time that elapsed from receipt of
funds from OMB Airport Finance to deposit in the bank by the Clerk's Finance
Department ranged from same day deposit to 32 days, with 4 receipts exceeding 4
days or more.
3. Immaterial errors were found in the reversal of end year accruals of receivables for
both Key West and Marathon Airports.
Criteria
1. Monroe County Administrative Instruction 2300.2.(4)C provides that "If rental
payment becomes ten (10) days past due, late notice will be sent to Lessee by Airport
Management demanding immediate payment to avoid legal action taken for default of
Lease".
2. Monroe County Administrative Instruction 2300.2.(4)D provides that "If rental
payment becomes one (1) month past due, the County Administrator will be consulted
and, unless extenuating circumstances exist, the County Attorney will be contacted by
Airport Management to begin process to evict Lessee. Notice will be sent to Lessee
and necessary steps taken by Airport Management to facilitate eviction".
3. Management is responsible for assuring that financial and operating records contain
'accurate, reliable, timely, complete, and useful information.
4. A September 11, 1991 memorandum from the Clerk's Finance Director to the Director
of the Office of Management and Budget requested review of airport cash receipt
procedures and revision in order to make timely deposits. (See Exhibit H1)
29
T. Deposit And Recording of Airport Revenues: (continued)
Effect
1. Infrequent reconciliations, along with excessive processing delays could complicate
efforts to reconcile Airport ledgers to the Official Records.
2. No material misstatements or errors were found which would have an adverse effect
on the financial statements of Monroe County.
Cause
1. On occasion, some receipts have been held, pending resolution of problems or pending
an employee's return from vacation.
Recommendation
1. Airport Management should comply with the requirements of Administrative
Instruction 2300.2.
2. Airport Management should ensure that OMB Airport Finance records contain
in accurate, reliable, timely, complete, and useful information.
3. Airport Management should consider a policy of using alternate employees to process
billings and receipts during the absence of an employee with primary responsibility for
those functions.
4. The Clerk's Finance Depaitiuent should ensure that the Airport Revenue Ledger Book
contains accurate, reliable, timely, complete, and useful information.
5. The Clerk's Finance Director should ensure that computer generated financial reports
(Official Records) provide sufficient information to Airport Management staff to allow
efficient reconciliation with Airport records.
6. The Clerk's Finance Director should ensure that deposits of County Airport Funds are
deposited timely on a daily basis.
7. The Clerk's Finance Director should ensure that year-end accruals of accounts
receivable for FY91/92 have been properly reversed in FY92/93.
County Administrator's / OMB Response
Billings [are] done monthly. Letters or calls are made to vendors in arrears. Some
revenue is held in [the] Airport Finance Office pending verification of correct amount or
settlement of other questions regarding proper payments. On occasion, checks have been
returned to payor and a replacement check has been issued. Otherwise, revenue is
forwarded to Clerk's [Office] on a timely basis. Also note, reconciliations are done
monthly and [the] Airport Finance staff person is never out of the office longer than 5
days. OMB staff will open mail and forward checks if possible to verify that the amount
is correct. If questionable, the checks will be held until clarification received. If there
r were a vendor in the termination process for whatever reason, the acceptance and
depositing of a check could invalidate the eviction process.
30
T. Deposit And Recording of Airport Revenues: (continued)
Clerk's Finance Director Response
Currently the Clerk's Finance Department monitors the Key West and Marathon airport
revenues according to the accrual basis of accounting. We have automated the airport
accounts receivable aging report and the subsidiary ledgers for more efficient monitoring
and reporting. The records are updated daily, monitored weekly, and reconciled monthly
to the appropriate airport revenue account. The accounts receivable aging report is
forwarded weekly to the OMB airport office to assist with late notices.
The input of cash receipt information has been standardized to assist in efficient
reconciliation with airport records. In addition, the accounts receivable aging report and
subsidiary ledgers will also be of assistance in reconciliation procedures.
It is the policy of the Clerk's Finance Department to make deposits daily.
With the aid of the subsidiary ledgers and the accounts receivable aging report, the year
end accounts receivable have been properly recorded with a clear and concise audit trail.
U. Review of Airport Ledgers Maintained By OMB Airport Finance And The Clerk's
' Finance Department:
Condition
1. OMB Airport Finance and the Clerk's Finance Department both individually maintain
a ledger of Airport billings and receipts. A review and comparison of billing and
receipt postings in both sets of ledgers revealed errors of the following types:
a. Outstanding balances not carried forward to subsequent years.
b. Unrecorded billings of rentals and fees.
c. Unrecorded collections of rentals and fees.
d. Erroneous amounts posted.
e. Incorrect description (applicable months).
2. Internal Audit obtained assurance that the integrity of the Official Records is intact and
can be relied upon; however, the information provided in the revenue subledger
may be inadequate for efficient reconciliation purposes.
3. Although the OMB Airport Finance Office and the Clerk's Finance Department both
currently have a justifiable reason to maintain an Airport billing/receipt or revenue
ledger, the information is similar in nature and maintenance of a double set of books
is inefficient.
Criteria
1. Management is responsible for assuring that financial and operating records contain
accurate, reliable, timely, complete, and useful information.
2. Management is responsible for assuring that operating systems and procedures are
designed to promote the efficient use of resources.
31
U. Review of Airport Ledgers Maintained By OMB Airport Finance And The Clerk's
Finance Department: (continued)
Criteria (continued)
3. Per OMB Airport Finance staff, reconciliations of Airport records to the Clerk's
Official Records should be performed monthly.
Effect
1. Any current understatement of revenues or collections which may exist in internal
management reports has not affected prior financial statements of Monroe County.
1) Prior to October 1, 1992, the County financial statements reported Airport
Operations and Maintenance within the General Revenue Fund. The modified
accrual basis of accounting was used correctly in accordance with generally accepted
accounting principles to record airport revenues when available for use to pay
current obligations.
2) Accounts receivable aging reports are prepared on the accrual basis to record airport
revenues when earned for the purpose of monitoring collections efforts and have not
been used to prepare financial statements.
3) Effective October 1, 1992, the Airports are reported as Enterprise Funds which
require the use of accrual basis accounting in accordance with generally accepted
accounting principles.
2. Unrecorded collections were successfully traced to deposit in proper bank accounts and
recording in the General Ledger (Official Records) by the Clerk's Finance
Department. Unrecorded billings and receipts were also found through comparison
of balances and posting in the three sets of records.
Cause
1. Clerical errors and infrequent reconciliations appear to have caused the errors found
in both sets of Airport ledgers.
2. Infrequent reconciliations performed by the OMB Airport Finance Office have failed
to detect errors.
3. In general, although the format and medium is different, the information maintained
in both sets of Airport ledger books is similar in nature.
a. OMB Airport Finance manually records billings and receipts on a personal computer
using a spreadsheet program. Billing/receipt printouts are maintained in an Airport
billing/receipt ledger for the purpose of monitoring billings and collections of
Airport rentals and fees. No accounts receivable aging reports are prepared;
however, a monthly activity report is prepared for management review which reports
the status of billings and collections.
b. The Clerk's Finance Department maintains a manual Airport Revenue ledger for
the purpose of preparing accounts receivable aging reports.
32
U. Review of Airport Ledgers Maintained By OMB Airport Finance And The Clerk's
Finance Department: (continued)
Recommendation
1. Airport Management, OMB Airport Finance staff and the Clerk's Finance Director
should coordinate efforts to determine what information is needed on computer reports
- to facilitate the record keeping and reconciliation processes.
2. Airport Management should consider establishing a policy for monthly reconciliation
of the Airport ledger to the Official Records kept by the Clerk.
3. The Clerk's Finance Director, Airport Management, and OMB Airport Finance Office
staff should coordinate efforts to eliminate duplicate accounting procedures performed
by both the Clerk's Finance Department and the OMB Airport Finance Office.
County Administrator's / OMB Response
OMB records [are] maintained for timely response regarding payment/billings from
Airport Manager, vendors, etc.
Airport revenues, as well as expenditures are, and always have been reconciled on a
monthly basis. Requests to correct posting errors discovered when reconciling to the
Clerk's Finance Department's official records are also done on a monthly basis.
Clerk's Finance Director Response
Part of the Clerk's role as Chief Financial Officer is monitoring all financial aspects of
contracts and leases. Therefore, the Clerk's Finance Department shall continue to
prepare accounts receivable aging report[s] and maintain subsidiary ledgers to ensure
compliance with financial conditions as stated in related leases.
V. Segregation of Duties:
Condition
1. The OMB Airport Finance duties of billing, collection, and recording of airport
revenues and fees are not properly segregated.
2. Internal Audit found no evidence to suggest any wrongdoing by the OMB Airport
Finance employee. Any suggested recommendations made are exclusively for
maintaining adequate internal accounting controls to protect the interest of the County
and its employees.
Criteria
1. Generally accepted principles of internal accounting control require that duties are
assigned to individuals in such a manner that no one individual can control all phases
of processing a transaction in a way that permits errors of omission or commission to
go undetected. The flow of activities should be designed so that the work of one
individual is either independent of, or serves as a check on, the work of another.
2. Employees with cash receipt responsibilities should be independent of related operating
and accounting functions, such as billing, invoice processing, accounts receivable, and
reconciliation of accounts.
33
V. Segregation of Duties: (continued)
Cause
1. OMB Airport Finance staff consists of one employee, who is supervised by Airport
Management. This employee is responsible for the duties of billing, collecting, and
recording, and reconciliation of Airport revenues and fees within OMB Airport
Finance.
2. Collections of Airport revenues and fees are forwarded to the Clerk's Finance
Department for deposit in the proper bank account and recording in the County's
Official records, but this procedure does not offset the above control weaknesses.
Recommendation
1. Airport Management should ensure that duties are properly segregated to comply with
generally accepted principles of internal accounting control.
County Administrator's / OMB Response
Airport Finance has one staff member. At this time, the work load does not dictate any
additional staff. We have to also consider budgetary restraints as the Airport operates
as an Enterprise Fund and must be self-sustaining.
W. Miscellaneous Billing Errors:
Condition
1. A November 1992 billing for an airline conducting business at Marathon Airport and
billings for a hangar lease at Key West International Airport did not include required
sales taxes.
2. In computing rent for non-exclusive rental space, three airline billings prepared by
OMB on September 30, 1991 used a rate of $12.80 per square foot per year instead
of a rate of $14.72 per square foot per year in accordance with standard rates and
charges and the rates established by the specific leases.
3. On several airline billings, the formula for allocating rent for airline non-exclusive
rental space was incorrect. Errors were corrected by the preparation of corrected
invoices or the application of credits to subsequent billings.
Criteria
1. Florida Statutes and Florida Department of Revenue Sales and Use Tax Rules provide
the criteria for collecting and remitting sales taxes.
2. Standard Rates and Charges specify the rates and fees which should be used in leases
and other agreements for the use of Airport property.
3. Management is responsible for assuring that financial and operating records contain
accurate, reliable, timely, complete, and useful information.
34
W. Miscellaneous Billing Errors: (continued)
Recommendation
1. Airport Management should establish a procedure for review of billings for accuracy,
completeness, and compliance with applicable laws and standards.
County Administrator's / OMB Response
Computer billing formulas have all been reviewed for accuracy as to proper rent and tax
charges and all necessary changes have been made.
35
EXHIBITS
f �
EXHIBIT A
Specific Language Required By Standard DOT Title VI Assurances
(Civil Rights)
According to the FAA AIP Sponsor's Guide, Standard DOT Title VI Assurances which must
accompany applications for Federal financial assistance include an agreement "that where
Federal financial assistance is received to construct a facility, or part of a facility, the assurance
shall extend to the entire facility and facilities operated in connection therewith". The assurance
also requires an agreement from the sponsor that the sponsor "will include the appropriate
clauses set forth in Attachment 2 of this assurance, as a covenant running with the land, in any
future deeds, leases, permits, licenses, and similar agreements entered into by the Sponsor with
other parties: (a) for the subsequent transfer of real property acquired or improved with Federal
financial assistance; and (b) for the construction or use of or access to space on, over, or under
real property acquired or improved with Federal financial assistance".
Appendix II (Attachment 2) of the Sponsors Guide states the following:
' "The following clauses shall be included in deeds, licenses, leases, permits, or similar
instruments entered into by the sponsor pursuant to the provisions of Assurance 5(a) and 5(b)."
"1. The (grantee, licensee, lessee, permittee, etc., as appropriate) for himself, his heirs, personal
representatives, successors in interest, and assigns, as a part of the consideration hereof, does
hereby covenant and agree (in the case of deeds and leases add "as a covenant running with
the land") that in the event facilities are constructed, maintained, or otherwise operated on
the said property described in this (deed, license, lease, permit, etc.) for a purpose for which
a DOT program or activity is extended or for another purpose involving the provision of
similar services or benefits, the (grantee, licensee, lessee, permittee, etc.) shall maintain and
operate such facilities and services in compliance with all other requirements imposed
pursuant to 49 CFR, Part 21, Nondiscrimination in Federally Assisted Programs of the
Department of Transportation, and as said Regulation may be amended."
"2. The (grantee, licensee, lessee, permittee, etc., as appropriate) for himself, his personal
representatives, successors in interest, and assigns, as a part of the consideration hereof, does
hereby covenant and agree (in the case of deeds and leases add "as a covenant running with
the land") that: (1) no person on the grounds of race, color, or national origin shall be
excluded from participation in, denied the benefits of, or be otherwise subjected to
discrimination in the use of said facilities, (2) that in the construction of any improvements
on, over, or under such land and the furnishing of services thereon, no person on the grounds
of race, color, or national origin shall be excluded from participation in, denied the benefits
of, or otherwise be subjected to discrimination, (3) that the (grantee, licensee, lessee,
permittee, etc.) shall use the premises in compliance with all other requirements imposed by
or pursuant to 49 CFR, Part 21, Nondiscrimination in Federally Assisted Programs of the
Department of Transportation, and as said Regulations may be amended."
Al
EXHIBIT B
Specific Language Required By Economic Nondiscrimination Assurance
49 U.S.C.A. §2210(a) states that "In any agreement, contract, lease or other arrangement under
which a right or privilege at the airport is granted to any person, firm, or corporation to conduct
or engage in any aeronautical activity for furnishing services to the public at the airport, the
sponsor will insert and enforce provisions requiring the contractor--
(1) to furnish said services on a fair, equal, and not unjustly discriminatory basis to all
users thereof, and
(2) to charge fair, reasonable, and not unjustly discriminatory prices for each unit or
service, provided, that the contractor may be allowed to make reasonable and nondiscriminatory
discounts, rebates, or other similar types of price reductions to volume purchasers."
B1
EXHIBIT C
Specific Language Required By 49 CFR Part 27
Nondiscrimination On The Basis Of Handicap In Programs And Activities
Receiving Or Benefiting From Federal Financial Assistance
49 CFR Part 27, §27.7(a) states that "No qualified handicapped person shall, solely by reason
of his handicap, be excluded from participation in, be denied the benefits of, or otherwise be
subjected to discrimination under any program or activity that receives or benefits from Federal
financial assistance administered by the Department of Transportation."
49 CFR Part 27, §27.9(a) states that "Each application for Federal financial assistance to carry
out a program to which this part applies, and each application to provide a facility, shall, as a
condition to approval or extension of any Federal financial assistance pursuant to the application,
contain, or be accompanied by, written assurance that the program will be conducted or the
facility operated in compliance with all the requirements imposed by or pursuant to this part."
49 CFR Part 27, §27.9(b)(2) states that "When Federal financial assistance is used by a recipient
to purchase or improve real property, the assurance provided by the recipient shall obligate the
recipient to comply with the requirements of this part and require any subsequent transferee of
the property, who is using the property for the purpose for which the Federal financial assistance
was provided, to agree in writing to comply with the requirements of this part. The obligations
of the recipient and transferees under this part shall continue in effect for as long as the property
is used for the purpose for which Federal financial assistance was provided or for a similar
purpose."
Cl
EXHIBIT D
COMPARISON OF CONSUMER PRICE INDEX INCREASES
1 '
Annual CPI Increases per OMB Airport Finance Records
Year 1987 1988 1989 1990 1991 1992
Miami/Ft Laud Overall CPI Nov—Nov 113.8 118.3 123 131 .2 133.5 135,9
% Chg from prior year 4.3% 4.0% 4.0% 6.7% 1 .8% 1 .8%
Miami/Ft Laud Overall CPI Avg—Avg 111 .8 116.8 121.5 128 132.3 134,5
- % Chg from prior year 3.6% 4.5% 4.0% 5.3% 3.4% 1 .7%
FY FY FY FY FY FY
Year 87/88 88/89 89/90 90/91 91/92 92/93
-- Rate Used By OMB 3.1% 2.9% 3.1% 1 .8%
Specific Leases:
Edward Knight 3.1%
Arthur Lujan 2.9% 3.1%
Island City Flying Service 0.94% 1 ,07%
Marathon Air Services 1 ,07%
Marathon Aero Services 3.80%
Sails In Concert 3.80% 5.30% 2.9% 3,1%
Donald Vecchie 3.80% 5.30%
Express Airways — Landing fees 3.1%
-- Airport Gift Shop 0,00% 15.43% 0.00% 0.00% 10,74% 10.00%
D1
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TEAR JAB. FEM. P R_ APB- 11T . JUE JULY AUG- SE►- OC T. 110f- .EC_ NAL7 *ALr 11C. F01-11T9 livt-AM6
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0..1 1979 67_6; _69.0 -. - 49_S 71-I 72-! 74-1 712 11.3 9_9 '--1
M _" 1%D 76.5 . 79.2 11D-5 12.9 12-1 • 53.1 61-1 12_I 73_9" w
�= _-_ 1M 25-2 DA_9 11.1 9D_L 93-2 15_3 _ 90-5 14_7 1'.L
._ 19>t2 96_3- `_ %.Z %• . 96.6 SA-2 46_l - 97_I -' 96_7 ... 2_I e_9
1913 %.D' - 96_6 9f_9 49_1 101_1 117_7" 99_9' 4_5 3.3
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- T:" -' 19114 1D2-L' -` 107_7 - iO3_2 103.L 10._2 114_4 702.9 IW_2 1035• 2_2" 3.6
7f15 1D4_L� 1DSS 10l_7 IDL_3 - 107_L il7_9 1063. 107-S 1pt_3•: - -3.4 2.9 f
• 1936 101_3 i 106J• 107-3 104_2 106_1 " • 119_1 197.9 101.1 107.9- 1.1 1.3
c.-rni c. • - , 1917 109.9 - 119-7 - 111.1 112-0. 112-5 113_9 110.7 113-0 111.I-•' 4_3 3.6
F 1911 114.5 - 115_1 116_2 - • 116_1 111_2 112_3 1155 110..2 ll®_II 4.0 •.5
co 1999 129_0 . 119.1 120.9 121-6 122_9 12I_I 120.4 122-7 121.5 4.11 4_0
E--• 1990 124.6 123.) 126_4 121-7 130_1 131_2 125-7 130_2 122_0 6_7 5.3 i
1991 131.5 - 132.6 132_9 132.0 152_1 133_5 131_9 132.7 132-3 1-
-.,
1992 )33.7' 134-5 .133.7 133_1 134_6 135_9 131A_•135-1 131.5 `T7� I!
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EXHIBIT F
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1 ,
.- - MEMORANDUM
. , .
To: Sandy Higgs ,
Executive Director, ' DC •
_ ...,. .
, , \ FROM: Thomas W. Brown
County Administrator
SUBJECT; Consumer Price IndeX
ENCLOSURE: (1) U,S. Department of Labor Bureau of
Labor Statistics Consumer Price Index,
All Urban Consumers, Miami-Fort
Lauderdale, Fl.
, . .
DATE: . June 30, 1992
• Please be advised the previous memorandum I sent to you datd ei
June 23, 1992, regarding this subject was based upon incorrect
information. Enclosure (1) provides the Miami, Florida area CPI
Index which the Monroe County Board of County Commissioners has
directed to be used es a matter of Board policy.
Please note that the "annual average" percent change in CPI
or f calendar year 1951 is 3,4% which is in keeping with the
Board's policy that the percent change in the CPI ",,.shall be
based upon the annual average CPI computation from January 1
.__ through December 33, of the previous year."
if you need any additional information regarding this matter,
please contact me directly.
. • .
. •
1 --- Thomas . Brown
County Administrator
• cc% Mayor HarVoy & Commissioners ,
'
. ' as% . ...,... ...i,
.__ .
F 1
(
j!
EXHIBIT G
STANDARD RATES AND CHARGES
- MONROE COUNTY AIRPORTS
: , Greiner Study,July 1992
' 1991 1993 Recommended Rates •
Approved Rates % % Existing Future
Description 1989 1991 , 1993 Increase Increase Facilities Facilities
- Effective Date Eff.10/01/92
Approved change from prior year +3.1%CPI
. I KEY WEST INTL
-- Terminal
Publicly Exposed Space,per sq.ft./annum $14.72 $16.30 $17.93 10.73% 10.00% $19.50 $25.75
' Non-Public Space,per sq.ft./annum 10.51 11.64 12.80 10.75% 9.97% 14.50 25.75
Covered Areas&Storage,per sq.ft./annum 8.41 9.31 10,24 10.70% 9.99% 12.00 29.80
Landing Fee,per gross landing weight $.55/1000 lbs $.60/1000 lbr $.62/1000 lb: 9.09% 3.33% $.65/1000 Ib! $.85/1000 lbs
12,500 lbs.or less $6.88 mir $7.50 mir $7.75 min. $8.25 mir $10.65 min
•
-- Land Rental Rate
Airline,per sq.ft./annum $0.363 $0.402 $0.402 10.74% 0.00% $0.434 $0.456
General Aviation,sq.ft./annum 0.305 0.337 0.337 10.49% 0.00% 0.364 0.382
_ Fuel Flowage Fee,per gallon delivered $0.03 $0.03 $0.06 0.00% 100.00% $0.04 $0.04
MARATHON
Terminal
Publicly Exposed Space,per sq.ft./annum $14.51 $16.07 $17.68 10.75% 10.02% $19.50 $35.00
Non-Public Space,per sq.ft./annum 9.67 10.71 11.78 10.75% 9.99% 14.50 35.00
Covered Areas&Storage,per sq.ft./annum 8.06 8.93 9.82 10.79% 9.97% 12.00 35.00
Landing Fee,per gross landing weight $.55/1000 lbs $.60/1000 lb: $.62/1000 lbr 9.09% 3.33% $.65/1000 lb! $.95/1000 lbs
$6.88 mir $7.50 mir $7.75 min. $8.25 mir $11.90 min
' , Land Rental Rate
. Airline,per sq.ft./annum $0.291 $0.322 $0.322 10.65% 0.00% $0.434 0.456
General Aviation,sq.ft./annum 0.217 0.240 0.240 10.60% 0.00% 0.364 0.382
Fuel Flowage Fee,per gallon delivered $0.03 $0.03 $0.03 0.00% 0.00% $0.04 $0.03
I
•
G1
EXHIBIT G
STANDARD RATES AND CHARGES
MONROE COUNTY AIRPORTS
Greiner Study,July 1992
1991 1993 Recommended Rates
Approved Rates % % Existing Future
Description 1989 1991 1993 Increase Increase Facilities Facilities
-- LANDING WEIGHTS-Both Airports $6,88 min $7.50 min $7.75 min
$.55/1000 $.60/1000 $.62/1000
Aircraft Airline Weight(Ibs) Fee Fee Fee
Beech-18 Air Cargo 8,500 6.88 7.50 7.75 9,01% 3.33%
' ' Beech-99 Eastern Express 10,000 6.88 7.50 7.75 9.01% 3.33%
Beech-1900 Eastern Express 16,100 9.13 9.96 9.98 9.09% 0.20%
Saab-340 Eastern Express 26,500 14.58 15.90 16.43 9.05% 3.33%
DC-3 Eastern Express 26,900 14.30 16.14 16.68 12.87% 3.35%
F-28-1000 Piedmont 59,000 32.45 35.40 36.58 9.09% 3.33%
F-28-4000 Piedmont 69,500 38.23 41.70 43.09 9.08% 3.33%
C-402 PBA-Mth 6,200 6.88 7.50 7.75 9.01% 3.33%
B-727 Eastern 137,500 75.63 82.50 85.25 9.08% 3.33%
- C-208 Federal Express 7,800 6.88 7.50 7.75 9.01% 3.33%
Jetstream-31 15,609 -- 9.37 9.68 -- 3.31%
Pan Am Express-7 43,500 -- 26.10 26.97 -- 3.33%
Brazilia 24,800 -- 14.88 15.38 -- 3.36%
' - Dash-7 42,000 -- -- 26.04 -- --
Dehavilland-8 33,900 -- 20.34 21.02 -- 3.34%
ATR-42 American Eagle 36,160 -- -- 22.42 -- --
SWM Comair 14,500 -- -- 8.99 -- --
' EMB Comair 12,250 -- -- 7.75 -- --
SD-3 Airways Intl 22,600 -- -- 14.01 -- --
G2
EXHIBIT H
•
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;y}„y,TI
r'::,MEMORANDUM . .
•
TO: Pam Womack,Director i,
' i Office of Management&Budget '
FROM: Taryn L Medina,Finance Director /'
• SUBJECT`: Timeliness of Airport Cash Receipts ....
DATE: September 11, 1991•
v.(
" ,I
- It has been brought to my attention that there are at times a lag of greater than a month
on receipt of airport revenues and the time when they are transferred to the Finance
-- Department for recording and depositing. An acceptable time lag is generally three days
• in order to safeguard assets and make investments on our excess cash. Please review the
airport cash receipt procedure and revise in order to make timely deposits. ,
Thank you for your attention to this matter.
CC Danny Kohlage ;:
Peter Horton - !
:r r:,rx,•ri rr:.
C.
•
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EXHIBIT I
•
•
BOARD OF COUNTY COMMISSIONERS
MAYOR,Jack London,District 2
OOUNTY
oFM 0 N R 0 E �I •T� Mayor Pro Tern,A Earl Cheal,District 4
•� v, Wilhelmina Harvey,District 1
KEY WEST FLORIDA 33040j,i •`!.! •� • Shirley Freeman,District 3
(305)294.4641 Mary Kay Reich,District 5
?';:; `1 it
1 , till JAN 181994 iI�
' I
OFFICE OF MANAGEMENT AND BUDGET INTERNAL AUDIT DEPT
MEMORANDUM
TO: Charles J. Hansen, Jr.
Internal Audit Director
FROM: Melonie Bryan, Director
Office of Management and Budget, x4482
DATE: January 17, 1994
SUBJECT: Airport Audit - Administration's Responses
Enclosed please find the Administration's responses to your draft
audit of the Airport Operating Revenues dated August 16, 1993.
These responses represent a consolidated response from the Airport
Finance Office, Airport Manager's Office and the Director of
Community Services Office.
Should you have any further questions feel free to contact me.
cc: J. Roberts, County Administrator
P. Horton, Director - Community Services
A. Skelly - Director - Airports
B. Moore - Airport Finance Coordinator
D. Kolhage - Clerk of Court
ll
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EXHIBIT I
AIRPORT AUDIT RESPONSES
Section II. Background should read:
A. Airport Management is responsible for implementing or
renewing airport leases or initiating termination of Airport
leases with the approval of the Board of County
Commissioners (BOCC) . Sign leases may be approved/executed
by the County Administrator. The Office of Management and
Budget (OMB) Airport Finance Office will be assuming the
lease duties effective immediately. All leases are approved
by the BOCC. The OMB Airport Finance Office in conjunction
with Airport Management monitors the collection of Airport
Operating Revenues.
IV. Audit Findings
A. General Compliance with Federal Laws, Regulations, and
Grants
All leases are approved by the County Attorney for legal
sufficiency prior to BOCC approval and execution.
B. Access to Landing Area from Off-site Location
As leases are being negotiated, we are striving for
conformity. The County Attorney's Office presently forwards
all fully executed documents to the Clerk's Office for
recording and distribution,
C. East Martello Tower
No portions of the East Martello Museum are currently used
for airport purposes. The County Attorney's office has been
asked to determine whether the Fort is obliged to pay Fair
Market Value for the property. Even though we agree with
Attorney Ludacer that "the museum has been in place for 50
years before the airplane was invented", we will request the
appropriate exemptions from the reverter clause as suggested
by the Internal Auditor. (See Letters attached)
D. Fair Market Value Rental of Non Aeronautical Leases of
Airport Property
Fair market value has been assessed and will be billed for
all properties at the Marathon Airport. Upon final
resolution of the existing lawsuit at the Key West
International Airport, the same standards will be applied.
I2
.
EXHIBIT I
Page 2
Airport Audit Response
E. Standard Economic Index for Adjustment of Rental Rates
Leases are being revised regarding CPI as they are written
/renewed. We use the Miami-Ft Lauderdale base as is the
adopted standard per BOCC policy. Due to turnover in the
Airport Finance staff, miscalculations may have occurred.
These errors are now corrected as the leases come up for
annual review.
F. Standard Rates and Charges
Standard Rates and Charges are updated on a regular basis.
A Professional Service Order (PSO) with Greiner, Inc. has
been executed to accomplish this task in 1994. We will keep
the Auditor's comments in mind as we develop the new Rates
and Charges.
G. Revised Minimum Standards for Commercial Aeronautical
Activities by FBO and other Providers
We agree that the Minimum Standards are in need of updating,
however, we also believe that the investment requirements
for FBO's are realistic. The Division Director has reviewed
all 3 FBO leases and has determined that the initial
investment requirements have been met. Documentation
attesting to this fact will be placed in each FBO file.
A determination by the FAA has been made concerning the
expansion of the existing FBO at KWIA. It has determined
that this is acceptable (see FAA Letter attached) .
H. Rights of First Refusal Defined by FAA as Exclusive Right
No additional leases have been found to contain right of
first refusal. No future leases shall contain right of
first refusal.
I. Flying Club May be A Fixed Base Operator
The FAA has determined that if the Marathon Flying Club is
used for commercial purposes, the activity would constitute
an FBO (see FAA Letter attached) . Therefore, we will
continue to insert language in their lease prohibiting
commercial activity as we have in the past. It should be
noted that the recently negotiated lease with the Flying
Club does contain such language.
I3
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EXHIBIT I
Page 3
Airport Audit Response
J. Aircraft Shelter Rental May be a Fixed Base Operator
As in Item "I", the FAA has determined that the Pierce
hanger would be an FBO by definition if commercial activity
is conducted on the premises (see FAA Letter attached) .
Therefore, commercial activity will be' prohibited as it has
been in the past and any lease renewal will contain language
prohibiting such activity.
R. Delegation of Authority to Fixed Base Operator
The FAA has determined that the sublease by Island City
Flying Service to Key West Aeroplane Tours, Inc. does not
violate FAA Order 5190.6A, Paragraph 4-2C (see FAA Letter
attached) . However, they have also determined that the
sublease of a portion of the ramp to Key West Aeroplane
Tours, Inc. is considered a separate FBO. Therefore, when
the Minimum Standards are revised, we will have to exempt
such activities from the standards as long as they are a
sublease portion of an existing FBO.
L. Subordination of Title
No subordination has taken place and no encumbrance has been
placed on airport property. See Letter dated October 21,
1993 from Spottswood, Spottswood and Spottswood addressing
this issue (copy attached) . The FAA agrees with Attorney
John M. Spottswood, Jr. and states that this does not
violate any FAA regulations (see FAA Letter attached) .
M. Rental Rates of Several Leases Differ from Standard Rates
& Charges
Airport Finance Office files will be updated to include
justification for variances from Standard Rates and Charges.
The FAA has determined that the $6,900. flat fee "does not
appear to be discriminatory. "
N. Untimely Execution of Board Approved Leases
We will ask the County Attorney's opinion regarding deadline
clauses in leases and will proceed based on the opinion
rendered. We have started a practice of calling the vendors
for signatory contact name and addressing the copies to be
executed to said contact.
I4
EXHIBIT I
Page 4
Airport Audit Response
0. Gift Shop Gross Revenue Fee
The intent is for collection of gross revenue fee for full
year - collected annually. This has been clarified in the
new lease agreement which was approved by the BOCC on
11/10/93.
P. Compliance with Lease Requirements for Periodic Rental
Increases
_ Car Rental leases are currently being reviewed and we are
requesting a breakdown of rent payments from the vendors.
Where it is evident that a rent increase is needed, the
vendor will be billed accordingly and notified of said
increase. Tickler file established for tracking of rent/fee
increases,
Q. Billings for Additional Space
The FBO at Marathon is paying the correct amount. The most
current addendum to lease agreement is all inclusive -
covering total space rented.
The FBO at KWIA has been contacted and is now paying rent
for all additional space.
Rent for both of the above FBO's was raised in Fiscal Year
1993 and letters regarding same were sent to the operators.
R. Certain Airline Rentals are Exempt from Florida Sales
Taxes
This office has procured the current handbook governing
Sales Tax and Uses from the Department of Revenue (DOR) . A
phone call on 10/20/93 to Lourdes at DOR revealed that
ticket counters, storage areas and office space for airlines
are all taxable, Areas for loading and unloading of
passengers is not taxable. She will be sending the most
current written documentation regarding this matter.
S. Florida Department of Revenue Sales Tax Adjustment
All back taxes on taxi rental space has been paid.
I5
EXHIBIT I
•
Page 5
Airport Audit Response
T. Deposit and Recording of Airport Revenues
Billings done monthly. Letters or calls are made to vendors
in arrears. Some revenue is held in Airport Finance Office
pending verification of correct amount or settlement of
other questions regarding proper payments. On occasion,
checks have been returned to payor and a replacement check
has been issued. Otherwise, revenue is forwarded to Clerk's
on a timely basis. Also note, reconciliations are done
monthly and Airport Finance staff person is never out of the
office longer than 5 days. OMB staff will open mail and
forward checks if possible to verify that the amount is
correct. If questionable, the checks will be held until
clarification received. If there were a vendor in the
termination process for whatever reason, the acceptance and
depositing of a check could invalidate the eviction process.
U. Review of Airport Ledgers Maintained by OMB Airport and
Clerk's Finance Dept.
OMB records maintained for timely response regarding
payment/billings from Airport Manager, vendors, etc.
Airport revenues, as well as expenditures are, and always
have been reconciled on a monthly basis. Requests to
correct posting errors discovered when reconciling to the
Clerk's Finance Department's official records are also done
on a monthly basis.
V. Segregation of Duties
Airport Finance has one staff member. At this time, the
work load does not dictate any additional staff. We have to
also consider budgetary restraints as the Airport operates
as an Enterprise Fund and must be self-sustaining.
W. Miscellaneous Billing Errors
Computer billing formulas have all been reviewed for
accuracy as to proper rent and tax charges and all necessary
changes have been made.
I6
EXHIBIT J
�GOVNI�O'.
1
fannp IL. 1 o jage
BRANCH OFFICE CLERK OF THE CIRCUIT COURT BRANCH OFFICE
3117 OVERSEAS HIGHWAY MONROE COUNTY 88820 OVERSEAS HIGHWAY
MARATHON, FLORIDA 33050 500 WHITEHEAD STREET PLANTATION KEY, FLORIDA 33070
TEL.(305)289-6027 KEY WEST, FLORIDA 33040 TEL.(305)852-7145
TEL. (305)292-3550
MEMORANDUM
TO: Charles Mansen
Internal Audit Director
FROM: Sandra Carlile
Finance Director
RE: Monroe County Airport Operating Revenues Audit
DATE: January 31, 1994
I
The following are my responses to the Monroe County Airport Operating Revenues Audit Findings as
related to the Finance Department:
Section III - Details of Audit Findings
•
T - Deposit and Recording of Airport Revenues
Recommendation 4 - The Clerk's Finance Department should ensure that the Airport
Revenue Ledger Book contains accurate, reliable, timely, complete, and useful
information.
Response: Currently the Clerk's Finance Department monitors the Key West and
Marathon airport revenues according to the accrual basis of accounting. We have
automated the airport accounts receivable aging report and the subsidiary ledgers for more
efficient monitoring and reporting. The records are updated daily, monitored weekly,
and reconciled monthly to the appropriate airport revenue account. The accounts
receivable aging report is forwarded weekly to the OMB airport office to assist with late
notices.
Recommendation 5-The Clerk's Finance Director should ensure that computer generated
financial reports(Official Records)provide sufficient information to Airport Management
staff to allow efficient reconciliation with Airport records.
I I
J1
EXHIBIT J
Page Two
Charles Mansen
1/31/94
Response: The input of cash receipt information has been standardized to assist in
efficient reconciliation with airport records, In addition, the accounts receivable aging
report and subsidiary ledgers will also be of assistance in reconciliation procedures.
Recommendation 6-The Clerk's Finance Director should ensure that deposits of County
Airport Funds are deposited timely on a daily basis.
Response: It is the policy of the Clerk's Finance Department to make deposits daily.
Recommendation 7 -The Clerk's Finance Director should ensure that year-end accruals
of accounts receivable for FY 91/92 have been properly reversed in FY 92/93.
Response: With the aid of the subsidiary ledgers and the accounts receivable aging
report, the year end accounts receivable have been properly recorded with a clear and
concise audit trail,
U - Review of Airport Ledgers Maintained by OMB Airport Finance and the Clerk's Finance
Department
Recommendation 3 - The Clerk's Finance Director, Airport Management, and OMB
Airport Finance Office staff should coordinate efforts to eliminate duplicate accounting
procedures performed by both the Clerk's Finance Department and the OMB Airport
Finance Office,
Response: Part of the Clerk's role as Chief Financial Officer is monitoring all financial
aspects of contracts and leases. Therefore, the Clerk's Finance Department shall continue
to prepare accounts receivable aging report and maintain subsidiary ledgers to ensure
compliance with financial conditions as stated in related leases.
Should you require any further information, please call me at extension 3560.
CC: Danny Kolhage, Clerk of the Circuit Courts
Scott Adams, Accounting Specialist
J2
EXHIBIT K
fl)
U. S. Department Orlando Airports District Office
of Transportation 9677 Tradeport Drive, Suite 130
I Federal Aviation Orlando, Florida 32827-5397
Administration
December 21, 1993 RECEIVED
K.W. INTL. AIRPORT
DEC 23 �yy�
Mr. A. R. Skelly
Director of Airports C r' , •
Key West International Airport i��
3491 South Roosevelt Boulevard , DEC 2 7l9Q3
Key West, Florida 33040 \\
Dear Mr, Skelly:
In response to your November 17, 1993, request for
clarification of certain paragraphs of the Monroe County
Preliminary Audit Report Draft, we offer the following
comments:
Paragraph F. Is the use of different land rental rates
for general aviation and airlines a violation of FAA
regulations?
No. Lease rates must only be "equitable. "
Paragraph G. Request for final FAA determination of
existing FB0 leasing additional ramp space at Key West
International.
FAA has determined that the expansion of the existing FBO
into new facilities is acceptable.
Paragraph I. Marathon Flying Club as an FBO when used
for commercial purposes.
Yes, this activity constitutes an FBO.
Paragraph J. Same question as "I, " concerning Charles
Pierce hangar.
Yes, this activity constitutes an FBO.
F, C-T ,
PARTNERS IN CREATING TOMORROW'S AIRPORTS
K1
EXHIBIT K
2
•
' Paragraph K. County/Key West International Airport FBO
lease questions.
Subleasing arrangements usually require prior concurrence
of sponsor. The activity described does not violate FAA Order
5190. 6A, Paragraph 4-2C. The 6-acre ramp sublease Is
considered a separate FBO,
Paragraph L. Consent and Estoppel question.
This approval does not violate FAA regulations, .
Paragraph M. FY-94 Rates and Charges for terminal space,
etc.
Based on our limited review, 1t does not a
discriminatory. PIS ar to be
For your information, a local citizen provided us with a copy
of the complete audit report which included issues other than
those mentioned above. We would appreciate receiving a copy
of the County's final response to the auditor, when available.
Sincerely,
W, Dean Stringer
Acting Manager
•
•
K2
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j I
EXHIBIT L
r. .. _ BOARD OF COUNTY COMMISSIONERS
_ MAYOR.Jack London,District 2
C
OUNTYLofMONROE
• I~ Mayor Pro Tar A Earl trio t District 4
+• .•��i Wilhelmma Harvey,District t
'•��.P. "`�••• ei Shirley Freeman District 3
KEY WESTl ORk)4 33040 '•• •'
13051 294.464 t 1 � :�� Mary Kay Reich.District 5
B.G 11" ••-P.ar A
A. R, Skelly ,, -
Director of Airports
Key West International Airport
3491 South Roosevelt Boulevard ' - 1*
Key West, Florida 33040
November 17, 1993
Mr. Charles Blair f L F� �i� � •� 1
Federal Aviation Administration
Orlando Airports District Office ,
9677 Tradeport Drive, Suite 130
Orlando, FL. 32827-5397 ( L I
Dear Mr. Blair,
A recent internal audit, of Airport Operating Revenues raised several
questions concerning various aeronautical leases at both the Marathon
and Key West International Airports. Copies of the audit comments are
attached and I request clarification of the following paragraphs from
the report .
F. Is the use of different land rental rates for general
aviation and airlines a violation of FAA regulations?
(See Gl-G2 and Attachment 1) .
G. Request a final determination of the existing FBO leasing
additional ramp space at Key West Int'l Airport to
accommodate a 1989 need for additional tie down space.
(See attachment ( 2) , FAA letter of August 4, 1989 and
responses. )
I. The Marathon Flying Club does not meet the FAA definition
of a "flying club" and never intended to. It is a group
of 9 aircraft owners who built, and over the past 20
years have sold and resold, 9 open bay shade hangars •
connected together in the NE corner of the airport. It is
a "flying club" in name only. Unfortunately, aircraft —
maintenance repairs or aerial photography entrepreneurs
who are non-hangar owners have occasionally used a bay
for commercial purposes. Does this activity make the
Marathon Flying Club an Ff3O? Note: A proposed lease
renewal is attached as Attachment 3 which includes
language prohil:it i.n,a the tlse of this hangar area for
cnmro••l c1;+l purpo:;r,:;,
J . 'rh:• (:harlot; Ptotcy tot,' (Jungat is identical to the
M.:r,,thon Flyi 'tq I,,ti I.Ilnq but .seprtr.utc:d from it. by
L1 •
EXHIBIT L
about 75 feet . The same conditions and questions that
were discussed in paragraph I above, apply to this
situation.
K. The lease between the county and the Key West Int' l
Airport FBO (Island City Flying Service) allows them
airport use and privileges which include "the operation
and sale of air taxi, ambulance and sightseeing flights".
The FBO subleases a small area of their 6 acre ramp to
Key West Aeroplane Tours, Inc. for the operation of
sightseeing and banner-towing operations. Is this
sublease a violation of FAA Order 5190.6A para. 4-2C? Is
this sublease to be, considered a separate FBO?
L. Does the approval of a Consent & Estoppel violate FAA
regulations? See attachment (4) for an opinion from the
attorney representing the FBO.
M. -Attachment ( 1) lists the FY94 Rates & Charges for
terminal space, landing fees, and land rental rates for
both Key West and Marathon. Request your determination
if the minimum fee for terminal space ($575/month) is
discriminatory.
Your response to these questions is required for me to close out this
audit report. I thank you in advance for your usual outstanding
cooperation in resolving these matters.
Sincerely,
A. R. Skelly,
Director of ports
( I
L2
EXHIBIT M
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ER EC E.
,
SPOTTSWOOD, SPOTTSWOOD AND SPOTTSWOOD OCT 1��-. l9�(J
ATTORNEYS AND COUNSELORS AT LAW 111 7
POST OFFICE DO% 1900 MR
SO0 FLEMING STREET AIRPORTS/OMB
KEY WEST.FLORIDA 70041.1l00
JOHN M. SPOTTSWOOD.JR. TELEPHONE
WILLIAM D. SPOTTSWOOD
]OS•IS•••SS{
R ODERT A. SPOTTSWOOD.P.A. October 21, 1993 TELECOPIER
OF COUNSEL: 00S•010• Ipi
JOHN M.SPOTTSWOOD(1920.197S)
Art Skelly, Director of Airports
Key West International Airport
3491 South Roosevelt Boulevard
Key West, FL 33040 •
Re: Lease with Monroe County for Island City
Flying Service, Inc.
rl
Dear Mr. Skelly:
The purpose of this letter is to respond to the County
Auditor' s comments concerning the Leasehold Mortgage on the
above-referenced Lease.
FAA Order 5190 . 6 is not applicable to the financing in
existence between Island City Flying Service and First National
Bank. The Rule requires certain procedures to be followed in
order for the County to subordinate title to its property. If
that were to occur, the County could lose its property to the
Lender if the terms of the Mortgage were not kept. This is not
the case with a Leasehold Mortgage. The facts of this situation
are that the County leased the property to Island City Flying
Service . Island City then assigned this Lease to the Bank as
security for a Leasehold Mortgage. In the event that the Lessee
did not meet its obligations under the terms of the Mortgage, the
Bank' s remedy would be to step into the shoes of the Lessee and
perform all terms and conditions of the Lease as if it were the
Lessee . This would also be applicable to any Assignee of the
Bank. Under this scenario, the County has an unsubordinated
Lease with Island City and, therefore, the above-referenced FAA
Order is not applicable,
I hope this clarifies the questions raised by the County
Auditor. If you require any further information, please call.
Sinc rely,
HN . SP TTSW OD, JR.
JMSjr/edc
cc: Island City Flying Service
Joe Kelinson, County Attorney's Office
Ml
EXHIBIT N
. . ,...,,._ BOARD OF COUNTY COMMISSIONERS
MAYOR,Jack London,District 2
OUNTYLOINIONROE i • Mayor Pro Tem,A Earl Cheat,District 4
•���' Wilhelmina Harvey,District 1
KEY WESTLORIDA 33040 '44.107
` 1 Shirley Freeman,District 9
(305)294-4641 Mary Kay Reich,Dlstnct 5
_e
leb
rnunty Attorney's Office
310 Fleming Street, Room 28 ,
Key West, FL 33040 ,tl
I)'�
(305) 292-3470
NOV - 4 1993
MEMORANDUM
TO: Peter Horton, Director
Community ServicesDivision
FROM: Randy Ludacer
`` J/^_
County Attorney /
SUBJECT: Special Report on Airport Revenue Diversion Produced by
Spiegel and Mick Diarmid
DATE: November 3, 1993
I have reviewed the report of October 4th, which you
furnished, and find the issues very interesting. With respect to
our own situation, I am trying to get some resolution of the
title problems concerning the Martello Fort resolved so that it
will not be under the reverter clause commonly contained in
Federal deeds of that period. Additionally, I hope we will not
have to go through any paper accounting to the Airport for the
museum which has been in place for 50 years before the airplane
was invented.
RL/pr
cc: Art Skelly
•
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REC V D•
-
••Iranslniltal memo 7671 col p"aoe /3 SPIEGEL & MCDIARMID QUO NEW YORK AVENUE,N W
•
WASHINOTON.O.G.20003.4769
TELEPHONE IZ021 079.4000
d q i IZPoArs- 7El CCOP'EA 12oz1 393•2e6e
none
SOCIAL REPORT ON "ALMRO T REVENUE DIVERSION"
•
TO: Airport Directors and Attorneys
FROM: Jack Corbett and Rise Peters
DATE: October 4, 1993
RE: SPECIAL REPORT ON INCREASED FEDERAL ATTENTION
CONCERNING "AIRPORT REVENUE DIVERSION" AND "SELF-
SUFFICIENCY OF AIRPORT FEES AND CHARGES"
Every report that Airport Dlec,tors receive these days from Washington,
D.C. , seems to suggest that yet another Federal agency is investigating whether
"airport revenue is being diverted to non-airport purposes" or that still another
Congressional Committee is legislating against the phillty of such diversion.
This special report (1) clarifies what various components of the Federal
Govei••nmest are doing on this issue, (2) seeks to aggist Airport Directors in
explaining two Airport Improvement Program (AIP) "Sponsor Assurances" to
interested offiriai9 of their parent goverrunents, and (3) provides guidance in
defending against "airport revenue diversion" claims if the DOT'S Lru.ipeCtor
General's (IG) staff plans to audit their airports' accounts and 1easPs
1, REASONS FOR INCREASED FEDERAL CONCERNS
There are four reasons for intensified Federal scrutiny of this issue.
First, the City of Los Angeles has indicated its desire to "legally divert" $30
million of LAX airport revenue to general municipal purposes (by a site specific
amendment to Federal law), The airlines have strongly opposed this possibility•
Second, the Federal Government can indicate its concern about the financial
losses the airline` have suffered without any cost to the U.S. Treasury's
ds
'The City of Los Angeles by ordinance has also substantially increased its
landing fees on airlines, which had been constrained for decades by a prior
residual use and leoqi> agreement. In their lobbying, media and litigation
e.tlor*.s, the airlines have sought to combine both issues, i.e. , "LAX is
Lncreasing its Landing fees so it can divert airport revenues." The issues are
separable but other airports that seek to Increase landing fees to cover their
airlines' fully allocated costs for airfield lose could aLso be tarnished with the
"airport revenue diversion" brush.
c ar TODd-�'>Z-;off 1I ,kA1Nfl0J 30bN0w
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EXHIBIT 0
by being "tough" on "airport revenue diversion.''' Third, based on its audits to
date the DOT Inspector General has concluded that some airport sponsors are
violating their AIP Sponsor Assurances with respect to revenue diversion and
that FAA should be taking an activist approach to finding violations. Lastly, to
the extent that airports divert revenue or fail to generate revenue from lease of
their assets, there is increased pressure from these airports for additional AIP
discretionary funds for capital projects,
•
2. WHAT THE CURRENT LAW IS
•
There are three components of current law that Airport Directors should
understand. Primarily, there's so-called "Assurance 12" that limits the use of
airport revenue by sponsors who have signed ALP Grant Agreements or have
Surplus Property Act property, Secondly, there's language in that Assurance
that "grandfathers" certain arrangements that predate September 3, 1982 (or
December 31, 1987 for aviation fuel taxes). Lastly, there's so-railed "Assurance
9" that requires airports to be "as self-supporting as possible," in part by
charging appropriately for use of their land and other assets,
a. Assurance 12
The Airport and Airway Inprovement Act of 1982, as amended (AAIA),
requires (at 49 U,S,C. 2210(a)(12))' that the Secretary of Transportation
receive written a_seurances, before granting funds under the Act, that (among
other things):
[GENERAL RULE] [A]ll revenues generated by the airport, if it is
a public airport, and any lnc ( taxes on aviation fuel (other than
taxes in effect on the date of the enactment of the Airport and
Airway Safety and Capacity Expansion Act of 1987) will be expended
for the capital or operating costs of the airport, the local airport
system, or other local facilities which are owned or operated by the
owner or operator of the airport and directly and substantially
related to the actual air transportation of passengez-s or property;
'It is interesting that virtually all the concerns expressed by the Federal
Government have focused on alleged diversions of airport revenues benefitting
the public sector, e.g. , the parent governmental body operating the airport
or neighboring Jrral governments. There is scant concern expressed that
aviation's private sector, the airlines and general aviation, are paying less
than their full share of airport capital, operating and maintenance costs at
hundreds of smaller airports. At major cities, individual "hubbing" airlines .
have ber,efitted specially from airport revenue loaned to financially troubled
airlines (Northwest and TWA); Nashville initially had proposed to purchase an
international route for use by American Airlines with airport revenue.
'The identification of the Sponsor Assurances reflects the numbering of the
paragraphs in section 2210(a) of the AAIA. The Assurances actually signed
by an A1P grant recipient have a different numbering system,
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[GRANDFATHER CLAUSE] except that if covenants or assurances
in debt obligations issued before September 3, 1982, by the owner
or operator of the airport, or provisions enacted before September
3, 1982, In the governing statutes controlling the owner or
operator's financing, provide for the use of the revenues from any
of the airport owner or operator's facilities, including the airport,
to support not only the airport hut also the airport owner or
operator's general debt obligations or other facilities, then this
limitation on the use of all other revenues generated by the airport
(and, in the case of a public airport, local taxes on aviation fuel)
shall not apply.
Assurance 12 address taking existing revenue off the airport for some
non-airport purpose. The general rule suggests that airport revenue must be
used for the capital or operating costs of the airport where it was generated, or
for other airports in the sponsor's system, or, for example, for a mass transit
station constricted on airport property by the airport's,parent government (but
probably not the costs of the rail system's guideway to the airport and rolling
stock). To the extent airport revenues are used for purposes other than these,
airport funds are "diverted" either legally or illegally.
b. Grandfatl}er Clause
The grandfather language at the end of Assurance 12 allows the legal
diversion of airport revenue in those uses predating the 1982 law where a public
agency (such as a multipurpose port authority) had issued bonds for many
transportation purposes and revenues and expenditures weren't kept on a modal
basis, Also, until the end of 1987 an airport sponsor could collect aviation fuel
taxes and use the revenue for non-airport purposes. The 1987 amendments to the
AALA prohibited additional airport sponsors from imposing and legally diverting
such local aviation fuel taxes.' GAO recently testified in Congress than ten of
the largest nineteen airports it had polled had some grandfathered airport
revenue that was being legally diverted. No additional "grandfathering" will be
authorized by Congress.
c. Assurance 9
In addition, the DOT Secretary is also required (at 49 U.S.C. 2210(a)(9))
to be assured that:
the airport operator or owner will maintain a fee and rental structure
for the facilities and services being provided the airport users which
will make the airport as self-sustaining as possible under the
circumstances existing at that particular airport, taking into account
such factors as the volume of traffic and economy of collection....
'It is unclear whether an airport sponsor whose aviation fuel tax was
grandfathered in 1987 could thereafter increase the rate of such tax and
legally divert the extra revenue as well.
3
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Assurance 9 thus is different from Assurance 12 since its focus is on the non-
receipt of revenue to the airport to the extent of value given. Charging thr_.
parent government, a sister agency or a neighboring municipality too little--less
than the value (or, possibly, cost) of the asset or service provided -- is also
considered a diversion of airport revenue for non-airport purposes, This
requirement to maximize the self-sufficiency of the airport is mirrored in the
Surplus Property Act.
3, AUDIT STANDARDS AS APPLIED BY DOT'S INSPECTOR GENERAL
The Department of Transportation's Office of Inspector General ("IG") has
undertaker) audits of selected airports to evaluate the effectiveness of FAA's
Airport Compliance Program and to comply with the direction received from the
House DOT Appropriations Subcommittee.
I
Almost two dozen IG audit reports on
eased over
the past two years and others are in process. I1has indicaterts have d tnhat i
twill issue
a nationwide audit report summarizing the results of these audits and relating
sponsor internal control weaknesses to FAA's compliance program. Audited
a'Pc to that IG s Pied as being completely in compliance with Assurances
12 and 9 are: Palm Beach (FL), Nashville (TN), Salt Lake City (UT), Dallee-Ft.
Worth (..TX) and Massport (MA).
•
The IG's audits primarily focus on whether FAA's procedures have been
adequate to assure that airport sponsors were complying with the revenue
accountability requirements imposed when they accepted (1) Federal grants-ln-
aid under the ALP program or predecessor acts and/or (2) Land or other property
under the Surplus Property Act of 1944, as amended ("Surplus Property Act").'
The IG found that in numerous instances FAA'e compliance efforts were
insu.fit ent to assure that airports were fulfilling those requirements.
While the FAA's policy has been to rely on the self-certification of airport
sponsors, single audit results, and third party complaints to disclose compliance
violations, the DOT. IG takes a more aggressive approach, The IG's audits were
performed in accordance with Government Auelitinq Steedards prescribed by the
U.S. Comptroller General. 1G auditors reviewed (and relied on, to the extent
'One audit involved primarily non-revenue assurances. In reviewing
Airport Improvement Projects performed by the Houston Department of
Aviation the IG Report discussed other areas of noncompliance, such as
failures to complete projects without undue delay, to set out In writing and
adhere to proper procurement techniques, to include only eligible costs-in
claims for FAA reimbursement, and to follow proper change-order procedures.
In addition, the IG found that Houston had failed to follow land acquisition
requirements, The e'ty's tiles did not show the cpielieications of appraisers,
• did not contain negotiator records, and did not contain adequate proof of title.
Appraisals were not submitted to FAA for approval before the land was
Purchased, and no review appraisal certificates were prepared. The final non-
revenue area audited in Houston involved conflicts of interest; the IC found
that the Department did not have adequate controls to prevent conflicts of
interest, as required by Federal regulation.
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•
possible) CPA and airport internal auditors' workpapers covering the airport's
single audit when receiving a Federal grant. In addition, the IG evaluated and
tested each airport's internal controls for land leases, fee, rental, and investment
revenues, and disbursements, generally for a three fiscal year period. Further
examination of the. paper record included review of the applicable FAA Region's
files on the airport, including the approved ALP and airport land use plans.
Beyond looking at the paper record, the IG also interviewed FAA Regional
personnel and airport staff, toured each airport, and identified vacant land, and
aviation and non-aviation uses of property at each airport. The IG's review did
not include an evaluation of landing fees or terminal leases at any airport,
although it did cover other aeronautical leases.
In many instances, the IG turned up practices that it stated were in
noncompliance which FAA either had not been aware of or had not felt were
noncompliant.
4. RESULTS OF IG AIRPORT AUDITS UNDER ASSURANCES 12 AND 9
Here's a summary of the major IG audits to date. Airport Directors are
advised to have general familiarity with these fact patterns in case pressures
arise for similar actions in your area,
a. Violations of Are ranee 12, thg prohibition on revenue diversion
•
The IG found that a number of airport sponsors had diverted airport
revenues to non-airport uses in alleged violation of 49 U.S.C. 2210(a)(12).
Several instances involved diversion of funds from the airport to the sponsoring
city or county's general fund, either through direct payments, payments in lieu
of taxes or payments that exceeded the value of services provided, or otherwise.
1. Diverfuon of airport revenue • szrjy____agatzaLtaaa
At St. Louis-Lambert International Airport, the IG discovered that when
AT&T's contract for payphone service in the airport terminal was renegotiated to
cover payphone service in public premises throughout the city, all revenues
under the unified contract were deposited in the city's General Fund. The IG
pointed out that the revenues properly attributable to the airport concession were
airport revenues, and should have been transferred out of the General Fund and
into the airport account,
Miami-Dade County, Florida, transferred funds from the airport account
to the county general fund that were not earmarked for airport or airport-related
projects. Because the funds were commingled, the IG could not determine if they
were used for airport purposes, and thus concluded that they were not,
2. Use of airport revenue for general economic development
marketing and promotional activities
The El Paso (Texas) City Council authorized use of airport funds, in excess
of the airport-specific amount normally paid by the airport each year, for market
development by the City's Economic Development Administration. This action was
5
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EXHIBIT 0
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taken without approval of the airport manager or FAA. Because of adverse local
publicity, the authorized money had not been taken out of the airport's account,
and the matter could be remedied by rescinding the authorization,
• Similarly, Miami-Dade County, Florida, required the airport to use airport
funds for non-airport related promotional activities, such as co-sponsoring local
events including a golf tournament, trade shows, scholarship banquets and film
festivaLS,
3. Payments to compensate neighboring c ity for lost tax revenues
The IG also found revenue diversion by the Broward County (Florida)
Aviation Department ("BCAD"). The BCAD, which operates the Ft. Lauderdale
Hollywood International Airport, used airport
revenue
neighboring city for property tax revenues lost bythe city after BCAD acquired
land within the city for airport expansion and removed the land from the city's tax
base, Although the money in question was ostensibly paid for backup fire
protection services, IG found noncompliance because the agreement to pay
specified that the payments would end when the city annexed sufficient property
to make up the lost tax revenues, •
4. Payments-in-lieu-of-taxes, or other assessments in excess of
value of services provided
Palm Springs, Calf fornia, was found to have diverted airport revenues off-
airport where the City Council, by resolution, required In Lieu of Property Fee
Payments totalling $740,000 in 1990 and 1991 to the City's General Fund. The IG
looked at the value of services provided by the City and determined that$557,332
were legitimate expenses for which the City was properly reimbursable, and
recommended that FAA require refunding of approximately $183,000.
El Paso, Texas, was found to have charged the airport special assessments
beyond the city's approved indirect cost allocation plan, Those special
assessments were not documented or levied against other governmental cost
centers. Special assessments included a percentage charge on airport revenue
generated by parking, car re.ntalq, rental car parking, foreign trade zone, and
ground rental leases, which the city said was justified by increases in traffic from
the airport, However, there was no evidence to support the assessments. In
other instances, items included under the special assessment were already being
charged under the indirect cost allocation plan; in one case (legal services) the
airport was being charged directly as well, resulting in triple-charging.
The State of Hawaii Department of Transportation Airports Division (HDOT)
was found to have transferred state airport revenue funds to the general fund
which were significantly in excess of indirect statewide costs allocable to the
airport, The excessive transfer was required by state law which imposed a 5
percent surcharge on airport receipts. FAA had previously found that the state
law was not violative of grant assurances because it fell within the exception
provided in 49 u.s.C. 2210(a)(12) for "grandfathered" charges. The IG
disagreed, pointing out that the grandfathering language applies where the funds
are being used to support the airport owner's general debt obligations or other
facilities, an exception which the IG felt did not apply in the case of a straight
6
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transfer to the general fund. •
)
The Houston Department of Aviation agreed to pay a flat rate of
$200,000/month for indirect cosh. However, the IG found that the approved
indirect cost allocation plan produced a lower figure for the actual indirect costs,
and there was no procedure in place for adjusting the agreed-upon amount to the
actual costs,
5. Charges not included in an approved indirect cost allocation
plan
FAA Order 5100.38A, the Airport Improvement Program Handbook, states
that indirect costs are allowable as a cost element for an AIP grant only if the
airport sponsor has an approved cost allocation plan, The IC found that Dade
County, Florida had received re.imburse.nent for indirect costs that were based
on an unapproved allocation plan. According to the IG, the plan has not been
audited to determine the accuracy of the cost allocation basis or reasonableness
of the costs allocated, even though FAA's ADO approved the plan contingent on
such an audit,
b. Vialationa of Assuranoa a the rem�trolr�enthah t a resorts ma�dmize
financial self--auftziancy
1. Leases at below-maret rates
In general, the IG inquires whether the airport sponsor is receiving "fair
rental value" on leased airport land. Fair rental value, the IG said, "is a market
based concept. After the [fair market value] of a parcel is established by
appraisal, fair rental value is determined by using the percentage of FMV
commonly used in the local area by the private sector to set fair rental value."
The IG generally estimated that fair rental value should be a firm 10 percent of
appraised fair market value (that is, a piece of property with an appraised fair
market value of $100,000 would have an annual fair rental value of $10,000),`
Thus, before an airport can set fair rental values for airport property, It
must have that property appraised. One of the most common failings spotted by
the IG was failure to have airport property appraised before leasing and to
consistently ilea those appraisals to set rental prices. For example, in its audit
of the Memphis-Shelby County Airport Authority, the IG found that the Authority
did not receive fair rental value on 14 of 25 yLuund leases reviewed because the
required appraisals had not been obtained.
'The IG asserted that "indirect rent benefits" such as tenant financed
improvements that will later revert to the airport, or the provision of services
such as fire protection or mosquito control, were considered in evaluating
whether fair rental value was received. However, in some instances in which
the airport's reply to the draft audit report cited such benefits, no changes
were made in the findings to take such benefits into account. In addition, as
discussed elsewhere, non-aviation related benefits such as general economic
development, job creation and the like were not considered.
7
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•
The IG's audit of the Greater Orlando Aviation Authority also revealed that
appraisels had not been secured for all property. IG complained that ground
leases to rental car companies did not return fair rental values. While the IG
recognized that car rental companies generate "a substantial amount of revenue"
to the Authority, it attributed that revenue to terminal concession agreements and
not the long-term leases because the Authority's accounting system classifies the
revenues in a different cost center from the lease revenues, and because the
ten-weal concession agreements and long term leases refer to each other only in
cancellation clauses. The IG stated that the. Authority could not substantiate its
claim that added revenue from car, rental companies justified the low rental rates.
Looking at aviation use percale, the IG cited as noncompliance a lease of a hangar
and ramp space used by a Sheriff's Department helicopter unit. The lease was
under a short-terns space use perrnit that was renewed each year. No appraisal
had been obtained,
2, Leases at below-market rates to the sponsor or other public
entities
The IG also found that dollar-a-year leas to neighboring governmental
bodies may violate the "self-sufficiency" language of 49 U.S.C. 2210(a)(9). In
•
auditing the New Orleans International Airport, the IG found that airport land
had been leased for el/year to the neighboring city of Kenner. Since 1976,
Kenner has used airport land for softball and soccer fields, tennis courts,
pang lots, a gymnasium and a scrap equipment yard. Similarly, the IG's audit
of Palm Springs, California, revealed that the sponsoring City was using 68 acres
of airport land, without payment, as the sites for its wastewater treatment plant,
for city fleet maintenance, and for city hall, council chambers, and a power plant.
The Hillsborough County Aviation Authority was found to have leased three
parcels to municipal tenants who were required to provide in-kind services (such
as police protection and mosquito conteol) in lieu of monetary rental payments.
However, while the leases required that the value of the services provided be
equal to or greater than the fair rental value of the land, no system was in place
to measure the value of the services. The IG's valuation of the services, based
on cost data provided by the tenants, showed the services to be worth less than
the fair rental value,
3. Failure to market vacant land
Failure to market vacant land was cited as a problem as well. In reviewing
the revenue compliance of the le roward County Aviation Department, the IG found
that ACAD "did not productively use 162.7 acres of vacant land to generate
revenue," and could have elm-eased its self-sufficsency by "proactively marketing
HCAD vacant land resources."
4. Failure to include reasonable escalation _clauses or
renegotiation provisions
The IG found that the City of Atlanta, Georgia, had not included reasonable
escalation clauses or periodic renegotiation provisions in 26 of the 29 leases
analyzed. Without those provisions, the Department of Aviation could not ensure
that leased land would continue to produce market-based revenue for the City for
8
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•
•
the full term of each lease. The IG found that language permitting, but not
requiring, periodic adjustments based on re-appraisals was not an adequate
provision for cost escalation. Without adequate escalation, even a rental rate
originally set at fair market value will, over time, result in recovery of fewer real
dollars over the life of the lease.
The IG's audit of the l-lilsborough County Aviation Authority, operator of
Tampa International Airport, disclosed that although the authority had obtained
appraisal of land leased to car rental companies, it had then capped the lease rate
at 8% of the land's value instead of the 10% recommended by its appraisers. This
cap was built into preexisting leases.
5. IG AND FAA DISAGREE CONCERNING NECESSITY OF AIRPORTS
RECEIVING FAIR MARKET VALUE ON LEASES
In general, the primary lesson to be learned by an airport that may be
faring an Inspector General investigation is that the airport cannot rest on its
prior untroubled relationship with FAA—not only will the IG dig deeper and turn
up more than FAA would, the two do not always agree on a proper standard for
judging an airport's compliance. Nor does the 1G seem responsive to FAA's
determinations of compliance.
Orra more constructive note, the IG seems to acknowledge that commercial
realities sometimes make it hard for airports to instantly rectify compliance
problems that an from existing contracts. Instead, the IG will accept an
agreement by the airport that it will modify existing leases to comply with revenue
accountability requirements when a change in the leases permits the renegotiation
of lease terms, coupled with a commitment to obtain fair rental value for new
'peeps,
•
DOT IG will push harder than FAA on requiring fair rental values based on
a firm percentage of appraised value, without recognizing that negotiation may
lead to lower figures. In responding to the IG's audit of New Orleans, FAA did
not ag-ree with the IG's estimate of lost rental income because of a policy decision
to "leave the negotiation of the rental rates of such property to the business
judgment of the sponsor," In the face of that policy, the IG insisted that since
FAA had suggested no better estimate of lost rental income, the IG's figure should
stand. Further, the IC will not honor an airport's decision to give$1/year lea
tc neighborng governmental entities for public purposes; nor is it entirely
responsive to the need to take account of other requirements, such as capital
investment requirements, placed on the tenant for benefit of the airport or
community.
DOT IG is pushing for fair market rental standard on aeronautical leases
as well, which is in tenon with FAA's requirement of reasonable (cost-based)
rates. In its report on the Sroward County Aviation Department, for example,
the IG recommended that FAA withhold future discretionary grants until BCAD
develops internal con~zois "to obtain fair market rent from both aviation and non-
aviation tenants." FAA declined, stating that it would give CAD 6 months to
implement a mechanism for obtaining fair market rents from non-aviation tenants,
and noting that there is no specific regulation requiring an airport sponsor to
obtain fair rental value from aviation tenants. The IG responded that
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(W)e cannot agree that aviation leases should be at rates less than
fair rental value. Although the term fair rental value is not used for
aviation tenants in FAA regulations, Federal law clearly requires
airports to be as self-sustaining as possible in order to receive
Federal financial assistance. In our opinion, charging less than fair
rental value on any lease reduces funds reasonably attainable by the
sponsor and therefore, such airport sponsor is not as self-
sustaining as possible.
The IG went on to state the linkage it sees between the self-sufficiency issue
raised by below-market lease rates and the issue of revenue diversion:
At the very least, a sponsor's diversion of airport resources to
subsidize other public or private purposes in violation of that
sponsor's grant assurances should cause FAA to provide
discretionary Federal grant funds to other more deserving sponsors.
This language implies that in some instances below-market leases, primarily a
violation of 2210(a)(9), could also violate 2210(a)(12) in cases where airport
property was leased at less than fair market value to a sponsoring or neighboring
public entity in order to support non-aviation goals. Under this interpretation,
an airport that gave up potential lease revenue would be seen as, in effect, using
airport revenue to subsidize non-airport purposes. This renders suspect two
• types of Contracts airports sometimes enter into: "incentive leases" for large
facilites such as airline maintenance bases, where a below-market rate is offered
in order to secure well-paying jobs for the neighboring community (a goal not
related to aviation); and below-market leases (often for$1/year) to public entities
such as the local search and rescue team, police helicopter hangar, sponsor-
owned tennis courts or golf courses, and the like.
• Elsewhere, in its audit report on the Memphis-Shelby County Airport
Authority, IG stated that
Recognising the FAA does not specifically require sponsors to
receive fair rental value for property lea"d for aviation related use,
we considered market based rent to be reasonable evidence of
compliance with the self-sustaining requirement unless the sponsor
justified leasing property for significantly leas than market based
rent.
Even where the airport has not accepted,federal grants, and thus the
prohibition on taking airport revenue downtown does not apply, the IG will still
oppose both below-market leases of airport land to subsidize the sponsor and/or
direct transfers or retention of airport revenues. In Pompano Beach, Florida,
which is not subject to grant assurance requirements, the IG suggested that the
airport be required to forgo all federal subsidies (such as funding for air traffic
control) before taking money downtown. The FAA, however, did not agree.
These audits, which focused in the first instance on individual airports'
revenue compliance, have as their larger purpose an overall a -sassment of FAA's
success in enforcing compliance with federal grant requirements. Given the
de-ficiencies found, it Ls likely that the DOT IG may push FAA to re-evaluate its
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•
policy of relying on self-assessments, single audit results, and third party
complaints. However, given FAA's resource constraints and primary obligation
to oversee safe operation of the national aviation system, any basic change in
approach is likely to face resistance from FAA.
6, PENALTIES FOR VIOLATIONS OF CURRENT LAW
While FAA appears less disposed than the IG to require airport sponsors to
recover funds improperly paid to other government entities, there is a trend
toward requiring the sponsors to obtain reimbursement to replenish airport
revenues, Recovery of diverted funds has been recommended in the Palm Springs
(CA), Miami-Dade County (FL), El Paso (TX), Ft. Lauderdale (FL), St. Louis
(MO), and State of Hawaii airport audits. Where an airport is not an ALP grantee,
the.IG has urged (Pompano Beach (FL)) that FAA's air traffic control funds be
stopped at the airport. FAA has authority to find, after notice and hearing, that
an airport Is in non-compliance with its grant agreements and is ineligible to
receive future ALP grants, FAA, however, takes extraordinary efforts to talk an.
_, airport sponsor into compliance with all Sponsors Assurances so Federal funds will
not be lost,
7, INCREASING LEGISLATIVE PRESSURES AGAINST AIRPORT REVENUE
DIVERSION
a. "National Airline Commission"
Even before the Committees of the 103rd Congress began legislating against
"airport revenue diversion," the final report of the National Commission to Ensure
a Strong Competitive Airline Industry urged rigorous enforcement of current AIP
grant assurance language against such diversion,'
b. House DOT Appropriations S_ukngttunitteg
Rep, Bob Carr (D-MI), the new Chairman of the House DOT Appropriations
Subcommittee, has focused attention on the issue by requesting the Office of the
DOT Inspector General to expand the audits it had been undertaking of airport
sponsors (see 3. Audit Standards as Applied by➢OT's Inspector General, above)
and by proposing legislation to increase the penalties for diverting airport
revenue "downtown."
'"Some municipalities, most notably Los Angeles, have proposed diversion
of funds from their self-supporting commercial airports to pay for general
municipal functions unrelated to airport operations. Federal law currently
prohibits such diversion at any airport that has received an Airport
Improvement Program (ALP) grant, Lf Los Angeles is directly or indirectly
successful In its efforts to divert funds, the precedent may have a devastating
impact on commerrmal aviation in the United States. We recommend; Rigorous
enforcement of existing ALP grant assurance language barring diversion of
airport revenues to non-airport purposes." Report to the President and
Congress (August 1993), at page 17,
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The Subcommittee's Report accompanying H.R. 2750, FY'94 DOT
Appropriations, streseed that "(title Committee is extremely concerned over
reports that some airports are diverting revenues to subsidize general state and
municipal expenses," To strengthen enforcement powers under Federal law, the
House has pigged, on the Subcommittees recommendation, language to assure Li:
section 333 of H.R. 2750 that "In-jone of the funds provided by this Act shall be
mane available to any State, municipality or subdivision thereof that diverts
revenue generated by a public airport in violation of the provisions of the Airport
and Airway improvement Act of 1982, as amended." While an FAA determinatior
that an airport sponsor continued to violate Assurance 12 could result in the loss
of future ALP eligibility, the Carr provision would subject that governmental
sponsor to the loss of all Federal transportation funds (e.g., highway, mass
t-ransit, airport grants) for such violations appropriated for next year.
The Senate Appropriations Committee did not include any parallel language
in its version of H.R. 2750, as reported on September 29, so the Carr language
will be resolved in the House-Senate Conference on the FY'94 DOT funding bill..
c. House Public Works and Transportation Committee
The House Public Works and Transportation Committee recently reported
H.R. 2739, the Aviation Infrastructure Investment Act, to the full Ho>>ge of
Representatives for a three-year reauthorization of the Airport Improvement
Program (ALP). That legislation includes two additional provisions that would
apply to sponsors who legally divert revenue under the 1982 and 1987
"grandfather" clanger. Fat., airport sponsors must file annual reports to FAA
on payments that are made to other units of governments and on services
provided to other units of government. This reporting requirement is to provide
FAA with a data base to determine which airports are diverting revenue legally
under the 1982 and 1987 "grandfather" clauses and how much revenue is involved.
Secondly, the bill provides that in deriding whether to award AIP
discretionary funds, the DOT Secretary shall consider, as a factor militating
Ogainst a oranI, the fact that an airport is using revenues generated by the
airport or by irrai taxes on aviation fuel for purposes other than the capital or
operating costs of the airport or the local airport system. This does not make use
of the "grandfather" clauses illegal: "[w j hat the provision does mean is that when
there are limited amounts of ALP discretionary funds, .. . consideration will be
given to the fact that an airport has chosen to take advantage of a grandfather
exemption and spend airport money off the airport.'
'The new provision is not an absolute ban against a grant to an airport that
is diverting revenue legally. "Under the bill, revenue diversion would be only
one factor to be considered. LE there are others factors indicating that an
airport's proposed project is particularly worthwhile, these positive factors
could be sufficient to overcome a negative factor of lawful revenue diversion."
Committee Report at pages 17-18.
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• Senator Wendell Ford (D-KY), Chairman of the Senate Aviation
Subcommittee, recently introduced a one-year AlP reauthorization bill (S. 1491)
but did not nnc.lude any provisions affecting legal or illegal ait-por. revenue
diversion. Given the. mood of official Washington, D.C., however, sueh
provisions could be added in Committee mark-up or on the Senate floor later. Uui
month.
8, ADVICE TO AIRPORT GOVERNING BODIES TO MAINTAIN AI:P
COMPLIANCE
Airport Directors who feel pressures from "downtown" for transferring
airport revenue for gene.ral municipal purposes or for charging less than :air
market value for use of airport assets should provide the following advice, based
on the IG audits and Congress' increasing sensitivity to this issue:
a. Any efforts by "downtown" diverting airport revenue are illegal
under Sponsor Assurance 12 unless specific actions, specified in the
statute, had been taken before 1982 or 1987. These narrow
excepttions were "gtandfathered" but no new actions will br.
protected. Even "grandfathered" provisions could endanger future
AlP discretionary funds, under the pending House kiP
reauthorization bill (H.R, 2739).
b. If Congress enacts the "di riosure" provision in H.R. 2739,
payments of airport revenue to other governmental units will become
public.zed, and IG audits may follow.
C. The IG will audit to make sure that payments of airport revenue to
ether units of governments are for services or goods of comparable
value. The best way to protect against an IG (or any) audit is to
develop and implement an "Indirect cost allocation plan." This would
•
demonstrate to all that payment levels are appropriate and that no
airport re•'enues are being diverted.
•
d, The IG could conclude that airport revenue must be recovered from
the public agency to which it has been diverted for non-airport
purposes. Under one version of the FY'94 DOT Appropriations Sill,
a parent government that diverts airport revenue could 1:se
eligibility for all Federal transportation aid, not Just AIP funds.
e. As to compliance with Assurance 9, the IG believes airport sponsors
must attempt to obtain fair market value for any airport land they
lease. This requires apprsiRais of land and leases with escalation
clauses. (FAA's standard is lower.)
f. Because Congress is attempting to reduce pressure from airport
sponsors for higher AlP grant levels from the Aviation Trust Fund,
pressures to panelize publicly--owned airports for airport revenue
diversion will likely continue and intensify,
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BOARD OF COUNTY COMMISSIONERS
MAYOR,Jack London,District 2
GUN TY o�M 0 N R 0 E ��' `:T Mayor Pro Tear,A Earl trio I District 4
•�' " Wilhelmina Harvey,District 1
v , Shirley Freeman,District 3
KEY WEST FLORIDA 33040 �Z... �!�!-�•',
(305)294.46.41 P
k'0�1Lf Mary Kay Reich,District 5
A. R. Skelly ..�
Director of Airports
Key West International Airport
3491 South Roosevelt Boulevard y lief/
Key West, Florida 33040
SEPI7103
MEMORANDUM •
TO: County Attorne
FROM: Art Skelly
SUBJ: East Martello Tower •
DATE: September 16, 1993
Enclosed is a part of the recent airport audit which questions the
status of the East Martello Tower as a museum on airport property on a
non-paying basis. Would you please determine if the Fort is or is not
obliged to pay fair market value for the property they occupy?
I will be happy to provide you with any records or documents I have to
assist you in this determination.
Thank you.
cc: Peter Horton
•
EC011
P1