Magazine

PT the Auditor

Its a computer how can it make a mistake in fee computing?

I asked my buddy Larry Donoghue to step in this month and give us a sample of his work. Take it away, Larry… Woof!

A medium-hub airport, located in a Southern state, engaged us to conduct a comprehensive operational audit of the its public parking facilities.

One of more than 200 audit check steps is to determine if the grace periods that the client’s representatives stated were actually being allowed by the revenue control system. We were informed that the grace periods in the surface lots were 6 minutes, and in the garage, 10 minutes.

Another audit check step we always perform is to recalculate the parking fees for a representative sample of the tickets that are processed both by cashiers and in express lanes where there are no cashiers.

When performing this check, we include tickets for all lengths of stay, from the shorter and longer stays in the short-term or hourly lots, to the shorter and longer stays in the long-term or daily facilities, and in the economy parking lots.

When we recalculated the fees on the tickets, we confirmed that each of the parking facilities had the proper initial grace period. However, we noticed that if a patron stayed more than 24 hours, they were not charged for the first 5½ hours going into the next 24-hour period. They received a “bonus” grace period of 5½ hours. Beyond the 5½ hours, going into the next 24-hour period, they were charged the proper parking fees.

This anomaly also was present for multi-day patrons, regardless of the length of their stays, be it one-plus days or any length of stay. In all cases, the first 5½ hours of multi-day stays were not being charged on the last days of their stays.

The tickets we had requested that the airport provide us were for the three busiest days of a two-week, randomly selected period we chose for the audit. We then extracted all tickets that were for stays longer than 24 hours.

At this point, we wanted to make a rough estimate of how much this defect in the revenue control system was costing the airport. We recalculated the parking fees for all of those tickets. It turned out that the loss in revenue was averaging about $400 per day.

The revenue control system was relatively new. It had been installed, tested and accepted seven months prior to our starting the operational audit. This defect in calculating parking fees had not been detected by:

• The supplier who was responsible for furnishing and installing the new revenue control system.

• The engineer or parking consultant who was responsible for the design, monitoring the installation, testing and acceptance of the system.

• The parking operator.

The seven months that this defect went unnoticed until we uncovered it included 214 days. In making the rough estimate, we didn’t count the days starting from when the exit lanes were first equipped with new controls and put into operation through the many days it took for the testing and acceptance.

We did this because each of the above responsible organizations might have found this defect sometime during that period, perhaps, even on the last day of the period.

If we multiply $400 by 214 days, we get $85,600. That’s a sizable sum. But let’s also look at the worst-case scenario.

What if the airport had not decided to have an operational audit conducted and the defect wasn’t identified anytime during the useful life of the new revenue control system?

We recommend that our clients replace a revenue control system after seven years of use if it has been subject to heavy-duty use (more than an average of 1,500 entries or exits per lane per day); and no later than 10 years if it has lighter-duty use, even though it may be functioning reasonably well.

There are two reasons for this recommended replacement. The technological changes occurring during the 10 years have made the equipment obsolete, and equipment manufacturers are not required to supply parts for equipment that is more than 10 years old.

Back to the worst-case scenario: Let’s use the shorter seven-year lifetime for the equipment. That potential loss would amount to $400 x 365 days x 7 years, which totals $1,022,000. Again, being conservative, we haven’t taken into account the fact that there probably would be several rate increases during the seven years’ usage of the equipment.

Audits usually don’t actually wind up costing the clients anything. After the audit is completed and the client has implemented the recommendations for the way to correct the deficiencies in the system, the revenue usually increases significantly by stopping the ways revenue was being lost due to:

Patrons who were cheating and not paying their proper parking fees.

Cashiers who found weakness in the controls and were stealing.

Supervisors or managers who had higher access to the control systems, and were committing fraud.

In many cases, the increase in revenues in just the first year alone amount to several times the consultant’s fees for conducting the audit, and the increase continues yearly thereafter.

Operational audits are prudent investments. The payoffs can

be substantial.



Contact Parking Consultant Larry Donoghue, President

of Larry Donoghue Associates, at ldonogh@aol.com.



 

Article Abstract from October, 2012




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