Airports Need Audits, Too …
Patron cheating and employee theft can be common in public parking operations at airports, hospitals and universities, as well as downtown. Research indicates that employee theft accounts for about 80% of the losses in revenue, and the remaining 20% of the losses are due to patron cheating. The theft by supervisors or managers accounts for more than 50% of the losses. Where theft is prevalent, cashiers who steal typically take $100 to $200 per day.
If cashier stealing is occurring, the annual losses range from 5% to 10% on the low side. At the higher end, the losses have from 40% to 50% of the annual revenues. Those higher-percentage losses occurred at two airports: one is in the Mid-Atlantic Region and the other is a large hub airport in Florida. The largest dollar losses that are due to fraud also take place at airports. This is because airports are usually the “biggest game in town.” The 10 largest airports in United States each generate more than $500 million in annual revenue.
What can an owner of parking facilities do to protect against being damaged by such harmful behavior by employees? The best remedy for patron cheating and employee theft is an audit. Audits provide a comprehensive examination of all crucial aspects of a parking facility to identify any weaknesses that could result in revenue losses. The scope typically includes a review and evaluation of the vulnerability of each of the following factors:
Is there any place where a patron can make an exit without paying the proper parking fee, for example, a 6-foot-wide walkway, an unprotected border grassy area, a low curb that can be jumped?
Revenue Control Equipment
Does the existing revenue control equipment have enough “muscle” to protect the facility’s revenue stream? Are any important components missing that would facilitate fraud? Do all components function properly, or have some of them been disabled purposely by the employees?
How do cashiers start their shifts’? How do they process routine transactions? How do they process exceptional transactions such as lost tickets, insufficient funds transactions and non-revenue transactions? How do they close their shifts?
What do the supervisors do to make sure that the cashiers are following the established procedures? Are the procedures manuals adequate in describing best industry practices? Are the cash-handling procedures adequate to protect against internal theft or loss from holdups by criminals?
Accounting and Auditing
Are all of the revenue control forms adequate to accurately record the revenue and activity? Are there enough audit check steps in place? Are the audits done with the proper frequency?
For each weakness detected as a part of an operational audit, a cost-effective remedy is provided to the owner. All
findings, recommendations and conclusions are contained in a written narrative accompanied by exhibits and tables.
Any perimeter control weaknesses or discrepancies in cash-handling procedures of ticket transactions are photocopied and contained in the audit report. Operational audit reports typically include documentation of 150 to 275 weaknesses or cashier discrepancies. The reports usually consist of 130 to 150 pages.
All of the above thefts would have been detected readily if the owner’s internal audit personnel had been trained in setting up the necessary secondary audit check steps and conducted their secondary audits at the appropriate frequencies.
Secondary audits pay for themselves. They usually result in increases in net revenues of 5% to 15%. Some have been in excess of 20%. This increase in net income continues year after year thereafter.
If your organization has never had an operational audit conducted for your parking facility, you should have it done. It will pay great dividends and possibly prevent an embarrassing
scandal that the media seem to love. Now is the time to get rid of your “silent partner.”
Larry Donoghue is President of Larry Donoghue Associates. He can be reached at firstname.lastname@example.org.
Examples of Problems that
Airport Audits have Detected
The public liability charges for a Midwest airport seemed out of line. A management agreement was in place. We suggested that our client – the airport – delete this from the agreement and seek coverage directly from insurance carriers. The coverage was obtained for one half of what the operator was charging. It turned out that the chairman of the parking operating company had personally owned a captive insurance company. He would obtain the coverage from a reputable insurance firm, then issue an invoice from his captive company for about double the premium.
At another airport in the Midwest, our operational audit revealed that the operator was overcharging for unemployment insurance coverage. Deductions should be made only for the first $9,000 in annual pay of the employees during any one year. In most cases, the deductions for this coverage should stop about mid-year, depending on the salary or wage paid to the employee. Our audit determined that the operator sought reimbursement for unemployment insurance on the basis of the full 12 months’ pay of all employees. In this case, our audit resulted in a substantial recovery by our client.
In an operational audit for a West Coast airport that had a management agreement in place, we questioned an Invoice for 20 uniforms. The investigation with the airport’s vendor determined that the uniforms were not delivered to our client’s airport. They were delivered to another airport whose parking facilities were operated by the parking operator under a concession agreement. Under such agreements, the operator is not reimbursed for uniform expenses.
Collusion among cashiers, supervisors and managers resulted in a $7.3 million theft over a three-year period.
Collusion among eight cashiers at a West Coast airport resulted in a moderate six-figure theft.
Article Abstract from April, 2007