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HomeMy WebLinkAboutAudit Reports - Public - Glendale Airport Audit - 10/11/2024 Glendale Transportation Glendale Airport Audit October 11, 2024 Independent Internal Audit Program 1 Independent Internal Audit Program Glendale Airport Audit Table of Contents Executive Summary 2 A. Introduction 4 B. Background 4 C. Objective 4 D. Key Outcomes 5 E. Audit Results and Recommendations 5 F. Process Improvement Opportunities 15 G. Audit Scope and Methodology 15 H. Data Reliability 16 2 Independent Internal Audit Program Glendale Airport Audit Executive Summary As part of our FY 2024 Audit Plan approved by the City Council, City of Glendale's Independent Internal Audit Program (IIAP) conducted a performance audit of the City's Municipal Airport (FAA code GEU). The audit aimed to evaluate compliance with contract/lease terms between the airport and its customers, determine opportunities to increase revenues, and address GEU’s operating deficit. Audit Objectives: The main objectives of this audit were to ensure the airport and its customers are complying with lease and contractual obligations, and determining whether revenues are accurately reported and recorded. Where possible, we also identified opportunities to increase revenues. We did not specifically test for compliance with FAA regulations or Arizona Department of Transportation (ADOT) rules/guidelines. Audit Conclusions: Overall, IIAP noted that revenues are not consistently collected or reported, compliance with lease/contractual obligations is not consistently performed or enforced, and that several opportunities for increased revenues exist, which will require significant funding, strategic planning, and time to achieve. Findings: 1. Information and payments received from many customers is random, at best. Payments for commercial activity are rarely submitted timely, and there is little to no documentation to substantiate the amounts provided. Description: IIAP judgmentally selected a sample of ten airport customers/business partners for testing. The sample included the Fixed Base Operator (FBO), Glendale Aero Services, and nine Specialized Aviation Service Operators (SASOs). Some items such as office rental in the Terminal Building and land leases (for hangars and/or hangar associations) are invoiced to customers through the City’s financial system. For other items such as SASO commercial activity or gate cards, the airport is relying on its customers to self- report and remit, or fees are collected upon transaction occurrence. Due to inconsistency of billing and payment collection, along with batching daily receipts that may not identify amounts per specific customer, there is no way to reconcile individual amounts to each SASO/commercial business customer. Severity: High 2. There are multiple instances where neither the customer nor the City are fulfilling their contractual obligations. These could be related to untimely customer payments and/or enforcement of late fees, providing insufficient support for 3 Independent Internal Audit Program Glendale Airport Audit payment amounts, providing annual CPA-prepared financial statements, and/or notifying customers of non-compliance. In addition, most leases contain terms that are unfavorable for the City which remain in effect for decades in the future. Description: Overall, long-term contracts have been in place with the main airport business partners for many years, with terms and rates that favor the customers compared to the City. Due to the length of original contracts, improved terms and current market rates may not occur for several decades with some existing customers. For example, the most significant contract for the airport is with the FBO, and that carries an expiration date of 2041, with two additional 10-year renewal options available – pushing existing terms to 2061. The FBO contract (and some other SASO contracts) require the customer to provide annual CPA-prepared financial statements to the City, but GEU management indicates no such statements have ever been received. Without enforcing contractual obligations by both parties, the City may have been receiving inadequate payments for years as mentioned in finding # 1 and could continue to do so for many years in the future. Severity: High 3. There are multiple opportunities to increase GEU revenues, most notably through the development of airport property east of the runway. The City could also adjust rates and fees to better align with similar airports in the area, offer new hangar lease options, and/or provide its own fueling and other ancillary services. Description: Based upon discussions with GEU management and review of several Strategic Plans, Business Plans, and rate/fee studies completed by various consultants, there are several options for increasing airport revenues. The most significant opportunity is development of the existing airport land east of the runway. That would allow for new office and/or hangar leases at current market rates, with more favorable payment terms and contract lengths to maximize City revenues. This development would be in several phases over 25 – 30 years and would require significant strategic planning and funding by the City. There are some other options to increase revenues on the currently developed airport property, such as constructing and operating its own fueling facilities and/or hangars on the south end of the runway. These would also require some planning and funding, but could be done in two or three years instead of 25 – 30. Severity: Medium 4 Independent Internal Audit Program Glendale Airport Audit A. Introduction The City of Glendale's Independent Internal Audit Program (IIAP) conducted a performance audit of the City's Municipal Airport (FAA code GEU). The audit was performed to evaluate compliance with contract/lease terms between the airport and its customers, determine opportunities to increase revenues, and address GEU’s operating deficit. B. Background Glendale has owned and maintained an airport since 1971, and GEU has been at its current location since 1987. There are approximately 500 acres of land, with a runway of 7,000+ feet and multiple hangars. GEU is a general aviation (GA) reliever airport for Phoenix Sky Harbor, offering aircraft storage and maintenance with private operators onsite providing flight instruction. There is no commercial airline traffic at GEU. The City owns the fuel farm and leases it to Glendale Aero Services, the fixed base operator (FBO). There are three 20K gallon above-ground fuel storage tanks. There is approximately 660,000 sq ft of aircraft storage hangar space and 400 individual units; 20K sq ft of space is dedicated to various aircraft maintenance activities. There is a 22K sq ft terminal building (two stories) with several businesses leasing office space; the restaurant within the terminal is no longer in operation. Apart from the FBO providing fueling services, major aircraft maintenance and other aircraft services, there are 20+ airport-related businesses on the property that provide flight training, storage services, aircraft repair and maintenance, and various other services. There is no Active Rescue and Fire Fighting (ARFF) station onsite; fire services are provided by the City from local stations. GEU is led by an Airport Administrator, who reports to the City’s Transportation Director. There are seven additional airport FTE (and an intern), including airfield operations and a Management Assistant, who is responsible for the business/financial operations of the airport. Airport operations are funded from a mix of direct revenue, the City’s general fund, and the GO Fund (transportation sales tax). Capital projects are funded by FAA and/or ADOT grants, sometimes with required matching funds coming from the City. For FY20-23, operational (non-capital) expenditures have exceeded operational revenues by an average of $322K. C. Objective The main objectives of this audit were to ensure the airport and its customers are complying with lease and contractual obligations, and determining whether revenues are accurately reported and recorded. Where possible, we also identified opportunities to increase revenues. We did not specifically test for compliance with FAA regulations or Arizona Department of Transportation (ADOT) rules/guidelines. 5 Independent Internal Audit Program Glendale Airport Audit D. Key Outcomes The Glendale Airport has potential for growth and the chance to become self-sustaining financially. However, it will require significant strategic planning, dedicated marketing and development, substantial financial investment, and a great deal of patience. There are some options available for shorter-term revenue gains – still requiring the attributes listed above – but allowing for potential to reduce GEU’s operating deficit. Before any of these capital investment decisions are made, however, the airport should address its existing needs for ensuring accuracy of revenue collected, enforcing contracts and creating more favorable terms, and ensuring both physical and human resources are optimized. E. Audit Results and Recommendations Finding 1: Information and payments received from many customers is random, at best. Payments for commercial activity are rarely submitted timely, and there is little to no documentation to substantiate the amounts provided. Condition For fiscal years 2020 – 2023, operational (non-capital) airport expenditures exceeded operational revenues by an average of $322K. In an attempt to verify reported revenues, IIAP selected a judgmental sample of ten airport tenants/business partners including the fixed base operator (FBO – Glendale Aero Services) and nine Specialized Aviation Service Operators (SASOs) to test accuracy and timeliness of payments due. The nine SASOs are: 1. Aerosim 2. Airwest Helicopters 3. Eagle Sport 4. Executive Aviation, LLC 5. Fox Aviation 6. Larry Afana 7. Reymundo Rodriguez 8. Skyquest Aviation 9. Glendale Hangars IIAP requested the following for all ten customers: • Copies of any contracts, agreements, leases, etc. currently in effect (could be for building space, hangars, services, or other) • History of payments received for FY 22 & FY23 (7/1/21 – 6/30/23) • Any financial statements (annual from a CPA and/or monthly statements to support the payment) 6 Independent Internal Audit Program Glendale Airport Audit Based on the testing, the following observations were identified: Information and payments received from many customers is random, at best. Payments for commercial activity are rarely submitted timely, and there is little to no documentation to substantiate the amounts provided. Airport staff frequently must disable/inactivate gate access cards of customers just to get their attention and remind them of payments due. The revenue recognition process is outlined below. GEU management will invoice its customers (through MUNIS) for the following items: 1. Terminal lease office rental 2. Terminal office rental utilities 3. Land lease (such as hangar associations) 4. Regular tiedowns 5. Advertising in the terminal The following items are not invoiced: • Gate cards • Commercial activity (SASO/aeronautical permit/business customer) • Conference room rental • Transient tiedowns • Fuel flowage For non-invoiced payments that are received at Cashiering, the general receipting process is used and batched into a total for that day’s receipts. If Cashiering cannot identify the customer (most non-invoiced customers do not have a unique record number in MUNIS) and/or tie a payment to a specific invoice, they reach out to GEU’s Management Assistant for help in determining to whom the payment belongs. If unable to determine, the “vendor” field in MUNIS will show as blank, or “Airport”, or something similarly generic. Depending on the cashier, they might enter the generic info into MUNIS even if the customer’s name is on the check. Regardless, because each day’s receipts are batched into one total, there is no way to reconcile individual amounts to each SASO/commercial business customer. In addition, some of these “unknown” payments get charged against the remitter’s monthly water bill. This may create a credit balance in their Glendale water account and cause the GEU Management Assistant to follow-up with the customer to find out why they didn’t pay the airport. The vendor will say they already paid (some are set-up for autopay through their bank). If applied to their water bill and then reversed upon researching the transaction, Budget & Finance must now make correcting journal entries, and then the customer’s water account may show additional monies due. Regardless, significant time for research and correction can impact customer satisfaction and create incorrect balances (albeit immaterial) within both the Water (enterprise) and general funds. For all payments received at the airport, the Management Assistant creates a Treasurer’s Receipt (TR), which is physically brought to Cashiering along with the credit card 7 Independent Internal Audit Program Glendale Airport Audit receipts/checks by GEU staff. The time in transit and at Cashiering takes away from employees performing their on-site duties at the airport. In addition, there is the risk of having payments lost/stolen. Whether the payments arrive in person, via mail, or if they were delivered by armored car, accounting is handled by Cashiering as detailed above. There is hope that upon implementing the airport’s new Aerosimple software solution, payment processing may operate more effectively. However, it is possible that the Management Assistant will need to create an invoice after the fact for currently non- invoiced items. Not only is this creating additional work, generally there is no supporting documentation to validate the monies remitted (such as no report from the commercial business customer’s financial system). As there is currently (or with Aerosimple in the future) no way to validate the amount of business actually performed by the SASO/business customer, we cannot know if Glendale is receiving our contractually obligated percentage. Criteria Per contracted terms with the FBO and sampled SASOs, certain percentages of services provided (fuel, repairs, etc.) to airport patrons should be remitted to the City. Generally, payments are due to the GEU administrative offices by the 15th of the following month. Depending on the contract, the customer should provide various levels of documentation to support the amounts remitted each month. Cause Over the last several years, there has been turnover in airport administration which has led to inconsistent revenue collection and lack of strategic focus. Prior management didn’t aggressively pursue revenue growth or enforce timeliness of customer payments. Additionally, there has not been an efficient system in place to process invoicing and payments, causing a lot of manual work and follow-up. Underlying all of these factors is the practice of customers operating within the “honor system” when it comes to reporting revenues throughout the General Aviation (GA) industry. Effect The airport has been running at an operating deficit for many years, relying on annual support from the City’s general fund. If allowed to continue unchanged, the operating deficit will continue to grow as the costs to staff and maintain current GEU facilities will only increase with inflation and further deferred maintenance. Recommendation Per discussion with GEU management, they have never received any CPA-prepared annual financial statements from the FBO or any other customers. Per contracted terms, the FBO and some other customers are required to submit their annual financials to the 8 Independent Internal Audit Program Glendale Airport Audit City for review. Due to non-compliance with this requirement, along with the inability to reconcile payments for any customer with commercial activity or other non-invoiced payment obligations, IIAP recommends that the City exercises their contractual right to request an outside CPA firm to conduct an additional audit of these parties. If the audit (of up to/through the past six years) demonstrates underpayment to the City in excess of two percent (2%) of amounts due, the customer is obligated to cover the costs of said audit. Note: The FY25 audit plan includes this CPA-performed review and the cost of said audit will be paid by the IIAP. If the audit determines that the customers are obligated to pay for those costs, IIAP will be reimbursed for the CPA fee and the airport will keep all operational monies due to them from past periods that they are able to collect. Management’s Response Management concurs with the finding. We will implement and enforce an “audit” program to collect any contractually required annual financial reports from customers. We will also select customers to review three months’ worth of financial reports, expanding the review to additional months if preliminary results warrant. If customers have no income to report, they will still be required to submit a statement indicating “no income” for that period. In addition, management will research the possibility of charging customers a yearly flat user fee based on estimated annual revenue. We will also research options in the new Aerosimple software to track pre-aggregated payments in MUNIS without adding to the Management Assistant’s workload. Finally, we will coordinate with Budget & Finance to ensure that payments sent directly to Cashiering are sent to the airport for processing prior to posting. The Airport Administrator and Management Assistant are responsible for implementing this action plan. While some aspects can be implemented quickly (such as utilizing Vector Systems for automatic billing of overnight parking and landing fees), other aspects will take longer. Since the Aerosimple software implementation is already underway, we will work with IT to optimize its pay portal. The proposed audit process will be developed by June 30, 2025, following the outside CPA audit that IIAP noted above. Finding 2: There are multiple instances where neither the customer nor the City are fulfilling their contractual obligations. These could be related to untimely customer payments and/or enforcement of late fees, providing insufficient support for payment amounts, providing annual CPA-prepared financial statements, and/or notifying customers of non-compliance. In addition, most leases contain terms that are unfavorable for the City which remain in effect for decades in the future. 9 Independent Internal Audit Program Glendale Airport Audit Condition IIAP attempted to determine the level of compliance with agreed upon terms between the airport and its customer base, including consideration of terms’ intent and/or length in effect. The same sample for the first objective was used for this objective. The names of the customers and their corresponding contract information is listed below: 1. Aerosim - original contract 2017; most recent renewal 2023. 2. Airwest Helicopters - original contract 1976; present contract of 1997 most recently amended 2009. 3. Eagle Sport - original contract 2017; original expiration date 2022, no record of renewals found. 4. Executive Aviation, LLC - original contract 2018; original expiration date 2023, no record of renewals found. 5. Fox Aviation - original contract for construction 2018; 20-year lease upon Certificate of Occupancy with amendment in 2020, term expiring in 2040. 6. Larry Afana - original SASO contract executed in 2020 for five-year term. 7. Reymundo Rodriguez - original Aeronautical Business Permit 2023; most recent renewal in 2024 through 12/31/2024. 8. Skyquest Aviation - six different suites in terminal originally contracted in 2017 for one year with five successive one-year renewals available; in 2023, a new lease was issued for one year with four successive one-year renewals available. There is also a separate hangar lease from 2018 with an initial expiration in 2046. 9. Glendale Hangars - original contract 1986 for a 25-year term with two successive 10-year renewals; Valley Aviation Service is successor-in-interest 2005; expiration is 2031. Based on the testing, the following observations were identified: For the most part, contracts have been in place for many years, historically with terms which favor the customers compared to the City. For new contracts, language is changed to make terms more favorable for the City and current market rates are utilized with the ability to adjust rates at subsequent renewals. But due to the length of original contracts, improved language and current market rates may not occur for decades to come with existing customers. For two SASOs in the sample (Eagle Sport, Executive Aviation, LLC), it is possible they are currently operating at GEU without a contract. The most significant contract for the airport is with the FBO. The contract with Glendale Aero Services was first executed in 1993 and amended several times in the 1990s and 2000s. The current version was made effective May 24, 2011, with a 30-year term. Upon expiration in 2041, there are two 10-year renewal options available, pushing existing terms to 2061. In addition to this contract, the FBO entered into a new land lease for hangar construction in January of 2022, with a 20-year term upon Certificate of Occupancy issuance. This is a primary example of the airport being handcuffed by its existing contracts. 10 Independent Internal Audit Program Glendale Airport Audit Criteria The airport and its customers should be complying with their respective contract terms. Generally, business contracts should benefit both parties and create a relationship of cooperation and growth. Monetary terms associated with the contract should be flexible and coincident with the marketplace over the life of the agreement. If necessary, length of contracts and extensions should allow for regular adjustments to market. Cause For many years, the airport has provided its customers with very long leases/contracts with terms that do not favor the City. Customers have come to expect automatic renewals or extensions with the original terms intact, not accounting for changes based on market rates or developments in the GA industry. The language in some of these leases and contracts do not even provide for the City to determine whether hangars are used for aviation purposes or contain any aircraft. Effect Due to lengthy and unfavorable contract terms with many customers, the airport is potentially missing out on substantially higher revenues for years to come. Recommendation There are instances where neither the customer nor the City are fulfilling their contracted obligations. These could be related to untimely customer payments, enforcement of late fees, providing insufficient support for payment amounts, providing annual CPA-prepared financial statements, and/or notifying customers of non-compliance. Specifically for the FBO and at least one other customer (Airwest Helicopters (aka Hangars Unlimited)), airport management indicates that no annual CPA-prepared financial statements have ever been received as contractually obligated. As already indicated above in conjunction with payment testing, IIAP recommends the City enforces the audit clause in each contract and hires a qualified CPA firm to audit the customer’s financial records for the number of years allowed per agreement. Furthermore, IIAP recommends that no existing hangar leases are automatically extended. Per the airport's lease agreements, at the end of each lease the hangar and all improvements revert back to the City. The effect will begin with the first expiration in 2036 and continue generally through the next eight or so years thereafter. At each lease expiration/revertment, the City has multiple options to choose from. The City could: (1) Lease individual hangar units at the current market rate at time of revertment; or, (2) Lease entire hangar structure (row) at the current market rate at time of revertment. 11 Independent Internal Audit Program Glendale Airport Audit Either way, the City would need to determine if the airport would manage their own structures or work with an outside party to manage them on its behalf. Preliminary estimates using current market rates indicate that leasing out individual units requires higher efforts and costs but provides the opportunity for much higher revenues. Whatever decisions are made, they should be done in conjunction with the overall strategic and marketing plans for development of the property on the east side of the runway, which will be further discussed in the third audit objective. Management’s Response Management concurs with the finding. Airport management will continue to work with City Procurement and the City Attorney’s Office (CAO) to review and update lease terms to ensure they are fair to the City. As lease rates should always be based on fair market value, airport management will determine the proper time for re-appraisal. Additionally, lease templates will be updated to give airport staff explicit authority to enforce rules and regulations, along with the right to inspect hangars (apart from Fire Department inspections). The update will also address abandoning CPI adjustments for a flat growth rate percentage (maybe three to five percent annually) to align with inflation. Finally, management will create a standard operating procedure to collect late fees. The Airport Administrator is responsible for plan execution. Some of these proposed changes are already underway, as he reviews land lease language at each RFP to ensure the City’s interests are protected, including required appraisals so that leases begin at fair market value. For space (terminal) leases, management will develop an updated ordinance to include provisions for fair market value as well. The updated ordinance and template work with CAO will be presented to City Council by June 30, 2025. Finding 3: There are multiple opportunities to increase GEU revenues, most notably through the development of airport property east of the runway. The City could also adjust rates and fees to better align with similar airports in the area, offer new hangar lease options, and/or provide its own fueling and other ancillary services. Condition IIAP attempted to identify opportunities for increased revenues at the airport, reducing its reliance upon the City’s general fund to cover the operating deficit. Based upon discussions with GEU management and the Strategic and Business Plans completed by various consultants, there are multiple opportunities available to achieve this goal. Consultants completed an Airport Strategic Plan (ASP) in 2021. Stakeholder interviews for the ASP revealed that GEU has potential but needs prioritization and funding. The airport is neither financially self-sustaining nor adequately marketed. Sentiment indicated that development of its existing property east of the runway should target corporate customers, which would help with financial support and allow for appropriate attention 12 Independent Internal Audit Program Glendale Airport Audit paid to deferred maintenance. Stakeholders felt the airport had an overall positive presence, although it was generally underutilized. Consultants also completed an Airport Business Plan (ABP) in 2022. The intent of this ABP was to identify potential new products/services to offer, develop some long-term revenue sustainable practices, develop strategies to attract corporate and heavy aircraft maintenance industries through a successful marketing plan, and develop a comprehensive plan for the approximately 125-acre parcel on the east side of the runway. Simultaneous with those objectives, GEU would need to address organizational structure and staffing, develop infrastructure design standards, and complete much needed facility aesthetic upgrades. In conjunction with the ABP, consultants facilitated peer exchange sessions with three Valley airports and initiated a Rates & Fees study with 10 peer airports. The airports selected were similar in size and function, particularly with respect to General Aviation, corporate aircraft, and related services. Airports were evaluated on number and types of based aircraft, FBOs, SASOs, maintenance/repair/overhaul operations, leasable facilities and land, and other aeronautical and general services. The biggest takeaways from the study were making rates more consistent with peers, updating rates to market in older contracts/leases as they are renewed or new agreements are made, and including CPI adjustments and/or market valuations to keep rates in line with fluctuating costs. Since GEU does not own any hangars directly and does not regulate the rates that private owners charge, GEU is potentially missing out on higher revenues than their peers are able to realize. However, the practice of leasing hangar space to others and having the lessees "manage" the space and/or corresponding hangar association is the current industry norm. In February of 2024, the final coordination meeting for the GEU Eastside Development Plan was held with various consultants and representatives from the City's Transportation (including Airport), Economic Development, Fire, Development Services, Budget & Finance, and IT departments, along with members of the City Attorney's and City Manager's Offices. The outcome was a phased development plan that would span 25 - 30 years, requiring significant investment and a focused marketing strategy. It will require a large effort to compete with other local municipal airports and become a self-sustaining, regional airport. Rates for services will need to be more aligned with the market, contract terms more favorable for the City, and GEU will need to "control" more aspects over its revenue stream. Existing facilities require upgrades and will need to align with the spirit and strategy around the new Eastside development. If the initial focus of development is on rental revenues for office and/or hangar space, as opposed to traditional SASO services, the potential for more consistent income exists, especially when set at current market rates. If traditional SASO services from new customers are sought, perhaps the airport could charge a larger fee up front for the permit (covering one or two years in advance) and eliminate the need to collect monthly fees. Regardless, once these new revenues have steadied, GEU can determine what other 13 Independent Internal Audit Program Glendale Airport Audit airport-related opportunities (car rentals, immigration office, food service, unmanned flight activity, etc.) to pursue depending upon the industry and market conditions at that time. Per discussion with GEU management, there are some other potential revenue options available now. The contract with the FBO does not grant them exclusive rights to providing fuel. If the City chooses, they could construct fuel storage tanks to manage themselves or pay another vendor to manage them on its behalf. The FBO currently offers two types of fuel: 100LL and Jet A. The City could offer Octane 94 (or similar), which is a popular alternative for smaller aircraft and not widely available in airports around the state. This would likely attract a lot of traffic from aircraft at nearby airports to refuel at GEU. The City could also offer 100LL and/or Jet A, undercutting the prices charged by the FBO but still keeping a larger portion of sales than the nine cents per gallon brought in by the FBO. This option would require substantial capital outlay up front (but likely under $1 million) and time to recoup its investment. Unfortunately, FAA/DOT grants generally cannot be used for fuel facilities, so the City would need to explore funding options. If the City decides to pursue their own fueling operation, it may also damage their relationship with the FBO and possibly incur legal challenges. Similar to the fueling option, the City could choose to build two rows of hangars on the south end of the property that are currently and/or soon to be vacant. Per airport management, approximately 20 hangars in each row could be built and managed in- house or by paying another vendor to manage them on its behalf. The City would be able to execute new contracts at market rates and with more favorable terms. Again, this option would require an initial capital outlay and time to recoup its investment. But the potential exists for higher earnings compared to current hangar revenues. Criteria The City should ensure that its assets and potential revenue sources are maximized to benefit its citizens. Attracting new business partners to the City can generate tax and operating revenues to fuel growth and better service delivery. Specifically for the airport, new revenue streams could reduce reliance upon the general fund, allowing those monies to be used for other City services. Cause The Glendale Airport has been underutilized for decades. There are many contributing factors, including changes in leadership at multiple levels throughout the organization, economic and budgetary conditions, and prioritization of initiatives. As with any large investment for potential future growth, a thorough strategic plan and commitment to its successful execution are required. 14 Independent Internal Audit Program Glendale Airport Audit Effect Without significant long-term investment and strategic planning, the airport will continue to run at an operating deficit and draw down the City’s general fund. Recommendation To accomplish the goals outlined above, IIAP recommends that airport administration completes several tasks: (1) As current GEU Rules & Regulations/Standard Operating Procedures are outdated and inconsistently enforced, update documents as appropriate and present them to City Council for approval and subsequent distribution to all customers/stakeholders. As part of these updates, GEU may wish to review its current fee schedule and institute new fees for derelict aircraft and/or failure to register aircraft with the State of Arizona; (2) Conduct an analysis of current staff to determine how their time is spent in a typical week. IIAP is not implying that more staff are needed or that current staff are not doing their jobs. Rather, IIAP suggests that a time analysis will help determine what percentage of hours might be spent on routine or administrative tasks versus time that might be more productive with respect to potentially optimizing revenue generation, facility upkeep, safety/security, and customer service. This analysis may also identify opportunities for automated solutions, cross-training, third-party operational agreements, etc.; and, (3) Determine the feasibility of building its own fuel farm and/or two rows of hangars, along with determining if said facilities should be run in-house or managed by an outside vendor. This will require researching funding options and input from the City Attorney's Office. Management’s Response Management concurs with the finding. Airport management will heavily edit and/or create new Airport Rules and Regulations, minimum operating standards, and standard operating procedure manuals. All fees will be reviewed and updated annually. For the second part of the recommendation, staff is already in the process of recording time spent to complete assigned tasks, and management is building a spreadsheet to analyze how many hours per position per year are required to safely and efficiently operate the airport without cutting any corners. As to the last recommendation, management believes the airport should operate a two-tank self-serve fuel station, with one tank containing 94 Octane unleaded gasoline and the other 100 Low Lead gasoline. Price point would be up to two dollars over wholesale, which is a significant improvement over the 9 cents fuel flowage fee at the FBO. The City would determine whether to build tanks ourselves (via CIP process) or do an RFQ to have an outside contractor build the tanks and keep a percentage of our fuel sales. As part of a future Master Plan developed by the Airport Administrator and the Transportation department, the City will also address potential 15 Independent Internal Audit Program Glendale Airport Audit buildout of new hangars on existing developed land, in addition to the proposed east side property development. The Airport Administrator, along with Operations and Security staff, are responsible for the first part of plan execution, which will require public input/review and City Council consideration (including updated rates/fees). Anticipated completion is December 31, 2025. All staff are participating in the second part, with expected completion by November 30, 2024. The Airport Administrator and Transportation leadership are responsible for developing the Airport Master Plan – which will be funded with grants provided by the FAA and ADOT – and could begin in FY26. F. Process Improvement Opportunities With implementation of the new Aerosimple software, GEU can streamline invoicing and receipting for customer payments. Airport administration should continue to work closely with IT and Budget & Finance (and perhaps Organizational Performance) to improve the process and more accurately post revenue into MUNIS. G. Audit Scope and Methodology IIAP conducted a limited scope performance audit of the Glendale Airport, concentrating on lease/contract compliance, revenue recognition, and potential opportunities for reducing the operating deficit. We did not specifically test for compliance with FAA regulations or Arizona Department of Transportation (ADOT) rules/guidelines. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on the audit objectives. IIAP determined internal controls over the following areas were relevant to our objectives: • Timeliness, consistency, and accuracy of invoices/payments for GEU’s customer base; • Compliance with various contract/lease terms for the customers sampled. To accomplish our objective, IIAP performed the following activities: • Interviewed members of the GEU administrative team and staff, as well as relevant staff in IT and Budget & Finance; • Obtained and reviewed the agreements currently in place with a judgmentally selected sample of ten GEU customers; and, • Obtained and reviewed multiple consultants’ reports and recommendations, along with attributes of similar airports of the surrounding geographic area. 16 Independent Internal Audit Program Glendale Airport Audit H. Data Reliability The primary data utilized for the work performed in this audit was obtained directly from the Tyler MUNIS Simplicity System, the City’s financial system of record, to analyze payments and operational deficits. MUNIS data reliability is reviewed annually during the audit of the City’s financial reports and the Annual Comprehensive Financial Report (ACFR) performed by the City’s external auditor. IIAP also analyzed the current contracts and leases in place for the sampled customers. 17 Independent Internal Audit Program Glendale Airport Audit Appendices Appendix 1 Definitions of Audit Findings Rankings We assigned the risk rankings based on our professional judgment. A qualitative assessment of high, medium or low helps to prioritize implementation of corrective action as shown in the table below. High Critical control weaknesses that expose the City to a high degree of combined risks. Recommendations from high-risk findings should be implemented immediately (preferably within 3 months), to address areas with most significant impact or highest likelihood of loss, misappropriation or damage related to the City assets. Medium Represents less than critical weaknesses that expose the City to a moderate degree of combined risks. Recommendations arising from medium-risk findings should be implemented in a timely manner (preferably within 6 months), to address these risks and strengthen or enhance efficiency in internal controls on areas with moderate impact and likelihood of exposure. Low Represents a low level of risk or control weaknesses and the exposure is not likely to expose the City and its assets to significant losses. However, they should be addressed in order to improve efficiency and effectiveness of operations. Recommendations arising from low-risk findings should be implemented within 12 months.