Finding Text
Finding No.: 2024-005 Federal Agency: U.S. Department of Transportation AL Program: 20.106 Airport Improvement Program Federal Award Nos.: All AIP Grants Area: Special Tests and Provisions – Revenue Diversion Questioned Costs: $-0- Criteria: In accordance with 64 FR 7696, all revenues generated by a public airport must be expended for the capital or operating costs of the airport, the local airport system, or other local facilities that are owned or operated by the owner or operator of the airport and are directly and substantially related to the actual air transportation of passengers or property. Condition: CPA has two divisions – airport and seaport. Certain costs are shared by both the airport and the seaport. The shared costs include management fees, salaries, legal fees, advertising, and administrative expenses. The airport pays for shared costs that are attributed to the costs of the seaport operations. The airport records the seaport’s allocation of the shared cost as ‘Due from seaport division’ and conversely, the seaport records ‘Due to airport division’. The seaport division normally settles amounts due to the airport division within 90 days. We observed that: • The airport division paid $615,140 of the seaport division’s shared costs during the fiscal year ended September 30, 2024. • As of September 30, 2024, the airport division’s receivable from the seaport division amounted to $120,582. CPA management asserts that use of airport revenues to pay operating costs of the seaport division is acceptable as the seaport division normally reimburses the airport division within 90 days. As such, CPA management believes this does not constitute a diversion of airport revenues. CPA did not provide documentation from the grantor agency to acknowledge that the grantor agency has approved the use of airport revenues to pay for the costs of the seaport operations. Finding No.: 2024-005, continued Federal Agency: U.S. Department of Transportation AL Program: 20.106 Airport Improvement Program Federal Award Nos.: All AIP Grants Area: Special Tests and Provisions – Revenue Diversion Questioned Costs: $-0- Cause: CPA did not effectively seek grantor guidance over compliance with Special Tests and Provisions on revenue diversion on shared costs between its airport and seaport divisions. Effect or potential effect: CPA is in noncompliance with Special Tests and Provisions – Revenue Diversion. No questioned costs are presented as we are unable to quantify the extent of noncompliance. Identification as a Repeat Finding: Finding 2023-004 Recommendation: CPA should seek approval from the grantor agency regarding use of the airport revenues to pay for operating cost of its seaport division. Views of Responsible Officials: Management disagrees with the finding. All costs incurred by the Seaport paid initially by the Airport are reimbursed in a timely manner. For purposes of efficiency, this method is used as to reduce the number of payments to vendors being made. The Airport Division has been fully reimbursed. CPA received grantor acceptance of the use of this method even though this practice of recordkeeping has been in place for more than 20 years. Refer to separate Corrective Action Plan. Auditor Response: The Federal Aviation Administration (FAA) reviewed and approved the corrective action plan in response to the FY2023 revenue diversion finding. Under this plan, beginning in FY2026 (effective October 1, 2025), all seaport and airport costs, except for payroll, will be paid separately, with no more interdivision reimbursements allowed. Finding No.: 2024-005, continued Federal Agency: U.S. Department of Transportation AL Program: 20.106 Airport Improvement Program Federal Award Nos.: All AIP Grants Area: Special Tests and Provisions – Revenue Diversion Questioned Costs: $-0- Auditor Response, continued: For payroll costs, the Seaport’s calculated share is prepared beforehand and is transferred to the Airport before pay date, with the Airport issuing a receipt of funds the next day. This prepayment arrangement is to avoid any semblance of Airport funds being used to fund Seaport operations. While the FAA has accepted CPA’s corrective action plan, its implementation does not take effect until October 1, 2025. In the absence of documented grantor approval authorizing the arrangement to use airport revenues for seaport-related expenditures to be repaid within a 90 day period and given the continued occurrence of the condition in FY2024, the finding remains unresolved and is reported as a repeat finding.