Airport Demonstrates Insufficient Oversight for Concessions

Published on November 21, 2022

A customer pays at the Etai's café checkout.

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DENVER – Consistent with a broader audit of airport concessions management earlier this year, a new audit from Denver Auditor Timothy M. O’Brien, CPA, found the airport’s Concessions Division is not adequately overseeing how it monitors individual concessions contracts.

The audit team found Etai’s Café — owned by Mission Yogurt Inc. — is self-reporting its revenue and calculating its own rent without independent oversight or airport review.

“The airport is not doing the due diligence needed to hold this concessionaire accountable,” Auditor O’Brien said. “Our audit earlier this year indicated there could be systemic issues with concessions accountability, and this new audit found a clear example of a continued lack of oversight.”

We examined the contract for one of Mission Yogurt’s concessions: Etai’s Café. We chose this concessionaire using a risk assessment process, which involved examining which concourse brought in the most revenue from food and beverage sales, considering vendor revenue, determining which vendors owned multiple airport concessions, and assessing whether the vendors were part of the Premium Value Concession program.

We found the airport allows Etai’s Café to sign off on its own annual financial statements — instead of requiring them to use an independent certified public accountant, which would provide a higher standard of assurance. Concessionaires have objected to using a CPA because of the cost, reportedly between $8,000 and $15,000 per vendor.

However, for large concessionaires like Mission Yogurt Inc., such a cost is not unrealistic — especially considering the additional assurance it would provide the airport and the amount of potential airport revenue at stake.

Mission Yogurt operates nine total concessions at Denver International Airport. In total, it reported making more than $46 million in 2021. From Etai’s Café alone, it reported making on average $4 million per year in net revenue since 2019 and paid an average of $600,000 in rent to the airport each year.

Airport officials disagreed with our recommendation to require a CPA for annual statements.

“Independent review helps the public know everyone involved in a transaction has their accounts balanced accurately,” Auditor O’Brien said. “For a vendor making millions every year, a CPA’s services shouldn’t break the bank.”

The airport’s lack of oversight becomes more concerning when Etai’s Café can self-report and self-certify its revenue statements without independent verification — and then calculate its own rent payment with no guarantee the city is being paid what it is owed.

For example, we found the café was giving thousands of dollars in unapproved discounts. The vendor then subtracted those discounts from its gross revenue, thereby reducing the amount of rent it owed to the airport.

We estimate the lost revenue to the city for these unallowable discounts to be about $13,000 since 2019. This may seem nominal — but considering that Etai’s contract is 10 years old and other airport concessionaires may have similar practices, the total loss in percentage rent to the city over the years could be substantial.

We also found bank reconciliations did not match Etai’s sales records. The amount of sales reported in the vendor’s point-of-sale system was sometimes hundreds or thousands of dollars different from the money deposited into the bank. Without being able to trace sales to deposits, we are unable to verify the accuracy of self-reported revenues.

Meanwhile, the Etai’s Café contract has been in place since 2012, limiting opportunities for the airport to reevaluate the contract terms. Competitive selection for government contracts guarantees the city receives the best value from its vendors. A city executive order requires city agencies to justify contracts with terms longer than three to five years. It also specifically says formal competitive bidding processes are advised for concessions contracts.

Our audit earlier this year identified broader concerns related to the airport’s overall concessions management — including a pattern of concessions contracts staying in place for years without being let out for competitive bid.

The Etai’s contract lasted through December 2019, when it then continued operating in “holdover” status through August 2021. At that time, the airport agreed to extend all concessions contracts due to the COVID-19 pandemic. The Etai’s contract now runs through Sept. 1, 2024.

We recommend the airport review Etai’s contract to assess opportunities for competitive bidding or to negotiate a new contract before the contract extension expires in 2024 — a review it had agreed to do for all held-over contracts based on our previous audit’s recommendations.

“Ten years is too long for any city contract to go unreviewed,” Auditor O’Brien said. “Competitive bidding helps ensure fairness and equity — and given the amount of money at stake, it’s especially important for the airport to get the best value from its concessionaires.”

Although the airport operates like a business, it is owned by the city and therefore has a duty to be a prudent steward of public dollars. Denver International Airport is the third-busiest airport in the world — making concessionaire contracts at the airport particularly valuable. Among all concessions at the airport, vendors brought in annual sales of about $386 million and generated $69 million in annual revenue for the airport in 2021.

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