HomeMy WebLinkAboutAudit Reports - Public - External Review for Airport Contracts & Revenues - 9/11/2025
City of Glendale, Arizona
External Review for Airport Contracts & Revenues
Table of Contents
Page
Executive Summary .................................................................................................................................... 1
Acknowledgements ........................................................................................................................... 1
Overview and Introduction ........................................................................................................................ 2
Background........................................................................................................................................ 2
Objectives, Scope and Methodology ................................................................................................ 2
Objective 1: Are airport contracts being adhered to? ............................................................................... 3
Methodology ..................................................................................................................................... 3
Summary of Observations and Recommendations .......................................................................... 3
Objective 2: Are airport revenues being properly recorded? .................................................................... 5
Methodology ..................................................................................................................................... 5
City Revenue Reporting Processes.................................................................................................... 5
Summary of Observations and Recommendations .......................................................................... 5
Appendix ..................................................................................................................................................... 7
Airport Contract Summary ................................................................................................................ 7
Airport Revenue Review Summary ................................................................................................. 10
City of Glendale, Arizona
Airport Contracts & Revenues Review
1
Executive Summary
The review of the Airport contracts and revenues was more limited in scope than would be necessary to
express an opinion or provide any other assurance on internal controls of the City. The focus of the
review was on the City Airport. A significant part of the audit included reviewing a sample of customer
contracts with the City Airport, along with their financials. Upon gaining an understanding of the
Airport’s systems and accounting processes, the second part of the review included analyzing if revenues
were accounted for properly. The review was conducted across the last five fiscal years at the City and
covered twenty-three Airport customers.
Below is a summary of the review objectives, conclusions, and related findings. Additional details,
including our recommendations, are presented in the following sections of the report.
Objective: Are airport contracts being adhered to?
Conclusion: Complex rental clauses embedded in contracts made terms difficult to adhere to and relied
on manual calculations throughout the last five fiscal years. Due to turnover in administrative positions,
documentation was not always retained and calculations related to rent increases were not always
performed consistently or in accordance with contract terms. We identified opportunities to standardize
contracts and improve the tracking of annual rent increases.
Objective: Are airport revenues being properly recorded?
Conclusion: Monthly revenues (office, hangar/land rentals and consistent tie down fees) are sufficiently
tracked/recorded by the City. Other, smaller revenue sources, particularly Specialized Aviation Service
Operator (SASO) commercial revenues, are unpredictable and reliant on the customer’s reporting to
the City. The reporting is oftentimes manual and after-the-fact. SASO revenues are not tracked on a
customer level in either the MUNIS financial software or iNovah cash receipting system. The City
performs a monthly reconciliation over the general billing invoices paid in iNovah against MUNIS, but
this process does not capture SASO revenue on level detailed enough to perform comprehensive
testwork over revenue reporting. From a customer side, no documentation was submitted to truly
substantiate the amounts paid to the City.
Acknowledgements
We would like to thank the City’s Internal Audit Program Manager, Budget & Finance, and Airport
Management staff for their assistance in completing the Airport Contracts and Revenues Review.
City of Glendale, Arizona
Airport Contracts & Revenues Review
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Overview and Introduction
Background
The City of Glendale has owned and maintained an airport since 1971. There are approximately 500 acres
of land, with a runway of 7,000+ feet and multiple hangars. The City owns the fuel farm and leases it to
Glendale Aero Services, the fixed base operator (FBO). There is approximately 660,000 square feet of
aircraft storage/hangar space and 400 individual units. There is a 22,000 square feet terminal building
with several businesses leasing office space. There are more than 20 airport-related businesses on the
property that provide flight training, storage services, aircraft repair and maintenance, and various other
services. The City Airport is led by its Airport Administrator, who reports to the City’s Transportation
Director. There are seven additional airport employees, including Airfield Operations and a Management
Assistant, who is responsible for the business/financial operations of the airport.
Objectives, Scope and Methodology
On June 25, 2024, the City Council approved the fiscal year 2025 audit plan, which included the Airport
Contracts and Revenues Review. The objective was to review the processes and controls in place over
tracking airport revenues, as well as auditing the financial reporting of multiple customers to determine
if the City is receiving correct revenues. In October 2024, the City contracted with HeinfeldMeech to
perform the Airport Contracts and Revenues Review.
The HeinfeldMeech team met with the City’s Internal Audit Program Manager on January 22, 2025, to
further gain an understanding of the audit objectives and the impetus for the review. During this
meeting, the audit team also met with representatives from the Transportation and Airport Department
to gain an understanding of airport management and solidify the review objectives. The objective of the
review was to answer the following two questions about airport contracts and revenues:
1.Are airport contracts being adhered to?
2.Are airport revenues being properly recorded?
Each task is reported in separate sections within the report, with detailed discussions of the performance
audit objectives, scope, methodology, observations, conclusions, findings, and recommendations.
City of Glendale, Arizona
Airport Contracts & Revenues Review
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Objective 1: Are airport contracts being adhered to?
Methodology
We performed the following to determine whether airport contracts are being adhered to:
•Conducted interviews with staff to develop an understanding of airport procedures and financial
recording.
•Sampled sixteen airport customers with a variety of contract types to answer the following:
o For all revenue recorded, was there a current contract on file?
o For office, hangar and land rentals, could the amount of revenue recorded be agreed to
contract terms? Did the monthly payment properly increase per the contract model?
o For tiedown fees and land permits, could the amount of revenue recorded be agreed to
the City-wide adopted fee schedule?
o Was the revenue transmitted by the customer properly recorded in MUNIS?
o For office rentals, were utilities collected reasonable? Did the City maintain their
methodology for assessing utility rates? Did utilities charged increase as the rent charged
increased?
Summary of Observations and Recommendations
Observation: Overall, instances of noncompliance with lease terms and missing documentation were
reported for all sixteen customers sampled. Convoluted rental increase terms using a Consumer Price
Index (CPI) model resulted in many instances of noncompliance. In addition, due to turnover in the
Airport Administration position, supporting documentation used to determine CPI calculations were
often missing.
Recommendation: The City adopts a flat growth rate percentage model for annual rent
increases as opposed to increases determined by the Consumer Price Index (CPI). This method
would require less work and complexity for the Airport Administrator when calculating annual
rent increases, reducing the risk of error and streamlining budgeting and lease administration.
Recommendation: The City procures a contract management software with billing capabilities. A
contract management software could auto-calculate annual rent increases, push out monthly
invoices and house the necessary details for monthly reconciliations. Furthermore, the tracking
of payments due and accounts receivable would help the City monitor untimely payments
and/or submission of commercial activity support from customers.
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Airport Contracts & Revenues Review
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Observation: Contracts that fell under the same category (office, hangar, and land rental) were not always
consistent across multiple customers in respect to terms and obligations.
Recommendation: The City standardizes contracts amongst the different categories of revenues
and adopts shorter lease terms. Ensure contracts follow a template that adopts terms and rates
that favor the City and allow for reassessments on property valuation. Furthermore, amended
contracts should include additional clauses requiring more monthly reporting from customers,
especially SASO operators.
A detailed recap of each customer contract review can be found in the Appendix.
Management response: The Airport concurs with the finding/recommendations. The most recent land lease uses a
flat 3% annual increase rather than CPI-U. It also requires an appraisal at the contract renewal time that will reset the
lease rate at the new Fair Market Value (FMV). This will ensure that the lease rate will be fair even if the annual
increase has not kept up with the value of the land. The terminal office lease template was recently updated so that
it, a) resets every tenant’s rent to a single FMV, and b) increases by 3% or CPI-U (urban) (whichever is higher) on July 1
annually. This effort was underway before the audit.
The Airport Administrator has been working with IT to find and procure a robust commercial property management
application that has the features recommended in this audit.
The latest land leases have better terms for the City; however, staff will continue to review leases for opportunities to
improve the terms to ensure the City’s interests are addressed. One such new provision requires lessee to pay user
fees if lessee does business in the hangar, rents the hangar to a sub-lessee, or sells the hangar to a new lessee.
Lessees doing business in the hangar are required to have a SASO agreement. Previous versions of the lease did not
have a provision making lessee’s SASO status explicit, and so lessees have been subletting their hangars at great profit
while the City receives nothing from that arrangement. We also have a graded renewal policy, which allows 5, 10, or
20-year renewals based on the amount of investment made. Airport Management plans to eliminate renewals for
anything under $1 million. The Airport Administrator, Procurement, and the City Attorney’s Office (CAO) will review
upcoming leases to strengthen the terms and conditions of the leases to protect the City’s interests. One error in
previous leases confused the legal terms “renewal” and “extension”; they have been treated as synonyms, while
Black’s Law Dictionary makes a very clear distinction between the two. Historically, renewals have been treated as if
they were extensions, preventing the City from renegotiating the terms of the leases. The current Airport
Administrator and Deputy City Attorney have collaborated to end this confusing point.
Because it will take time to procure and implement a new software solution and for work with the CAO to be
complete with respect to SASO agreement verbiage/rate updates, the target completion date is 12/31/26. That will
allow time for any necessary approvals by City Council, as well as advanced notification to current and future airport
customers with respect to rolling out new/updated agreements and rates.
City of Glendale, Arizona
Airport Contracts & Revenues Review
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Objective 2: Are airport revenues being properly recorded?
Methodology
We requested and reviewed the following from eleven SASO customers:
•Support behind any amount paid to the City of Glendale Airport for the last five fiscal years and
how each customer determined the expense amount - their methodology, formula, support
behind number of aircraft serviced, etc.
•Detailed general ledgers showing all revenue and expense activity by line item for the last five
fiscal years.
•Audited financial statements, if prepared, for the last five fiscal years.
•When applicable, monthly detailed and annual summary statements of gross sales and gross
margins in the last five fiscal years.
The customer records provided were then compared to the City’s ‘Commercial Revenue Tracking
Spreadsheet’ as well as the iNovah detailed revenue report for all five fiscal years.
City Revenue Reporting Processes
Routine monthly revenues (office rentals, land/hangar rentals, office utilities, set tiedowns, and
advertising) are sufficiently being tracked and recorded by the City due to these charges being invoiced
monthly to customers using the City’s financial system. However, non-routine revenues collected from
the City (SASO commercial activity, transient tiedowns and fuel consumption) are not tracked per
customer using the City’s financial system. The airport collects these revenues on an “honor system”
basis with the customer. Revenue collected is dependent on airport customers self-reporting and
manually remitting commercial activity and/or fees. These sporadic payments collected via mail or over
the phone are input into the City’s financial software in batches. Often, a specific customer is not
identified during the cash receipting process, so they are input as “Airport”. Due to this, approximately
86% of cash receipts input into iNovah cannot be tied to a particular customer. This has created an
inability to fully reconcile accounts to ensure all payments are received in full and timely.
Summary of Observations and Recommendations
Observation: Overall, documentation and payments received from customers operating through a SASO
contract was sparse and unpredictable. The supporting documentation provided by customers was not
detailed enough to confirm all revenue earned by the City was remitted to them. For example, if the City
collected $150 of SASO revenues related to flight trainings in June 2023, it could not determine through
customer records that the customer hosted exactly three ($50 each) flight simulators in June 2023. This
creates the risk of customers underreporting the amount of commercial activity they do each month.
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Recommendation: The City charges all commercial customers an annual flat fee to continue
operating at the airport, rather than relying on each customer self-reporting SASO activity. The
fee amount could be assessed using a tiered system of estimated annual revenue. This would
create a predictable revenue source for budgeting purposes, reduce the risk of customer under-
reporting and reduce a large amount of manual work by Airport Administration. Furthermore,
varied approaches on calculating 2.5% of gross sales across customers would be eliminated.
Observation: For five of eleven SASO agreements reviewed, revenues could not be tied out due to lack
of response from customer. For one of eleven SASO agreements reviewed, customer financial records
provided were not detailed enough to determine what business was conducted at Glendale Airport.
Recommendation: The City creates a standardized form given to all commercial customers to
ensure proper tracking of monthly revenues. These could be created based on the different
types of SASO activity. Overall, it is unachievable to track if airport customers are under-
reporting revenues due to no documentation supporting fuel consumption, number of aircrafts
serviced, flight trainings given, etc.
Observation: For two of eleven SASO agreements reviewed, no differences were found between
customer expenses recorded and City revenues recorded. However, further details to ensure customer
revenues were not underreported to the City were not provided.
Recommendation: See above.
Observation: For three of eleven SASO agreements reviewed, differences were found between customer
expenses recorded and City revenues recorded. In addition, further details to ensure customer revenues
were not underreported to the City were not provided, including fuel consumption data.
Recommendation: See above.
A detailed recap of each customer contract revenue review can be found in the Appendix
Management response: The Airport concurs with the finding/recommendations. Airport staff would like to move
towards a flat annual fee. However, the current SASO agreement needs to be modified to legally bind tenants to
provide a tax return or other documentation on which to base the fee. The City should implement a minimum
SASO fee regardless of the size of business, and have an annual renewal fee based on 2.5% of the previous year’s
revenue, calculated after the March 15 business tax deadline.
The SASO agreement template needs audit and enforcement language. The Airport provides all SASOs with a
commercial fee form; many SASOs simply ignore the form and don’t pay. SASO owners appear to think that fees
do not apply to them, whereas every SASO operating at the airport must pay fees on its revenues. A SASO that
does not report revenue should be audited with progressive discipline, which can eventually result in cancellation
of their lease agreement. For the same reasons listed in finding 1, the target completion date is 12/31/26.
City of Glendale, Arizona
Airport Contracts & Revenues Review
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Appendix
Airport Contract Summary
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Airport Contracts & Revenues Review
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Airport Contracts & Revenues Review
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City of Glendale, Arizona
Airport Contracts & Revenues Review
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Airport Revenue Review Summary
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Airport Contracts & Revenues Review
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