Finding 560055 (2023-004)

Finding No.: 2023-004 Federal Agency: U.S. Department of Transportation Assistance Listing Program: 20.106 Airport Improvement Program Award Numbers: 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: 1. 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 cost attributed to the cost 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 $789,887 of the seaports shared costs during fiscal year ended September 30, 2023. • As of September 30, 2023, receivables due from the seaport division totaled $198,055. CPA management asserts that use of airport revenues to pay operating costs of the seaport division is acceptable as the seaport division normally reimbursed 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.: 2023-004, continued Federal Agency: U.S. Department of Transportation Assistance Listing Program: 20.106 Airport Improvement Program Award Numbers: All AIP Grants Area: Special Tests and Provisions – Revenue Diversion Questioned Costs: $-0- Condition, continued: 2. For one (or 4%) of twenty-five cash journal entries tested, aggregating $789,887 of a total population of $63,692,682, airport funds were expended for the costs of a holiday event celebration. The costs included venue and meals which do not appear to be directly related to the airport operations. Details are as follows: Cause: CPA did not effectively seek grantor guidance over compliance with Special Tests and Provisions on revenue division on shared costs between its airport and seaport divisions. Moreover, CPA did not obtain grantor approval for the expenditure referred to whether it is duly permitted by the Federal Aviation Administration regulation. Effect: CPA is in noncompliance with Special Tests and Provisions – Revenue Diversion. Recommendation: CPA should seek approval from the grantor agency regarding use of the airport revenues: • to pay for operating cost of its seaport division, and • to pay for expenditures, such as cost of holiday events, that do not appear to be directly related to airport operations. Views of Responsible Officials: Management disagrees with the finding. Refer to separate Corrective Action Plan. Auditor Response: Condition 1: Although costs incurred by the Seaport division are fully reimbursed, it does not appear to meet the standards of compliance of using airport revenue for airport purposes only. Condition remains. Finding No.: 2023-004, continued Federal Agency: U.S. Department of Transportation Assistance Listing Program: 20.106 Airport Improvement Program Award Numbers: All AIP Grants Area: Special Tests and Provisions – Revenue Diversion Questioned Costs: $-0- Auditor Response, continued: Condition 2: The costs of the event appear to be entertainment expenses not part of the airport’s business purposes and not directly related to generating revenue for the airport. Condition remains.