Denver Auditor says DIA is leaving money on the table with lax vendor contract oversight
DENVER (KDVR) — The Denver Auditor says the Denver International Airport is losing money through lenient oversight of concession and vendor contracts, according to a recent audit.
“Denver International Airport concessions managers continue to leave significant
amounts of money on the table through insufficient contract oversight and a lack of
accountability for vendors,” the audit by the Denver Auditor’s Office reads.
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It means that the airport is not making all the money that it could be making, missing out on over $1 million each year. Auditor Timothy M. O’Brien told FOX31 that some general Denver funds could be impacted, but not as much as the airport’s enterprise fund to go toward future developments.
Audits find that vendors inaccurately report revenue
An initial audit of airport concessions management in 2022 identified risks in the contract management practices at the airport. Since then, auditors have begun to examine individual concessionaires. So far, two of the 185 individual concessionaires have been evaluated by the auditor.
The latest audit found that the airport’s limited oversight of the Woody Creek Bakery and Cafe contract does not ensure compliance and accountability for revenue collection, a recurring issue the auditor said has been seen with other concessionaires over the past several years at DIA.
A previous 2022 audit of Etai Cafe, which has a different owner and is in a different concourse, found similar results.
According to the recent audit, the airport’s inadequate management may allow concessionaires to inaccurately report revenue and operate outside contract terms without penalties.
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Concessionaires pay less rent by inaccurately reporting revenue
For example, the audit found that Woody Creek subtracted $185,000 in unallowed deductions from its gross revenue. Because the airport charges vendors and concessionaires based on revenue, this reduced Woody Creek’s owed rent amount.
According to the audit, more than half of the deducted $185,000 was from discounts to airport employees. While this is common in the industry, O’Brien said it is not permitted in Woody Creek’s contract.
“If it is a commonly accepted practice to allow certain discounts for employees and others,
then this should be formally approved and documented,” O’Brien said. “Without clear
instructions for what is allowed, the airport risks allowing vendors to start discounting
anything and everything.”
Airport not monitoring vendors’ sales or payments
O’Brien said that concessionaires and vendors at DIA self-report revenues, which are not verified. Additionally, the airport does not monitor point-of-sale terminals.
Nor is the airport tracking when concessionaires pay their dues to the airport. O’Brien said concessions managers do not have adequate documentation or established processes to track that due to a lack of staff. Late rent payments do not incur fees because of the low staffing
The audit found that Woody Creek failed to pay rent on time on many occasions, with 98% of the 62 invoices being late between January 2021 through June 2023. Nor was it not alone. The previous individual audit of Etai Cafe found similar payment compliance issues.
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Woody Creek was also found to have about $300,000 in unpaid invoices from 2017 through 2020, according to the audit. The cafe’s owner disputes that though, and the airport’s finance team is looking into whether payments may have been received.
How much money could the airport be missing out on?
According to the auditor, the airport does not charge concessionaires interest for late payments exceeding the five-day grace period, nor are the businesses charged for water use. Plus, the concessionaires are billed a flat rate for electricity use based on average electric costs from up to 13 years ago.
The auditor reported in 2019 that not charging interest to airport vendors and airlines results in an average loss of over $1 million each year.
As for utilities, the auditor said the airport could be taking on up to $150,000 in extra utility costs each year by not charging concessionaires for their water use.
“The airport has a big budget overall, but $150,000 is nothing to shrug at,” O’Brien
said. “The airport is losing too much revenue through its weak oversight and lenient
enforcement of contract terms.”
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How could this impact the airport or travelers?
O’Brien said these findings likely won’t have a significant direct impact on travelers, but Denver’s general fund and the airport’s enterprise fund would be impacted, potentially impacting city budgets and future airport development plans.
He explained that the airport enterprise fund would financially suffer the most from understated revenues as all revenue that is earned at DIA stays at the airport, other than sales tax dollars. He added that if revenues are underreported, sales taxes that go to the city will likely also be underreported, making Denver’s general fund financially suffer.
“These are public dollars. I think they need to be accountable for them,” O’Brien told FOX31. “They need to be overseeing contracts the way they should be overseeing contracts. And just because one contract makes a lot of money, it doesn’t mean that you let a contractor cut corners and not pay what they should be paying.”
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O’Brian noted that there are plans to build another runway at DIA, which will cost some $1.5 billion, so “every dollar counts towards their capital needs.”
What changes will come?
O’Brien said airport managers seem to be taking audit recommendations more seriously this time around.
“I think there is a different tone at the top from this audit compared to the last time,” we did it a couple of years ago,” O’Brien said. “I’m very encouraged by that, that we’ll get this issue resolved. It’s going to take time, but I think in the end, I’m confident that it will be resolved.”
He said the airport’s CEO Phil Washington seems committed to making some changes, and he thinks it is very possible.
The airport responded to the audit by saying its concessions, accounting and finance divisions plan to;
Evaluate staffing needs for accounting
Review policies and procedures for monitoring contracts
Develop, document and implement criteria for deductions
Establish procedures through the Continuous Monitoring Program to check on deductions
Inform concessionaires that rent and other payments are due
Review and update policies and procedures, such as payment guidelines and compliance reviews
Continue to determine the most effective and efficient way to calculate utility usage for Woody Creek Bakery & Café
The airport committed to re-implementing a PROPworks project that will include monitoring payment timing and setting up parameters that will allow the airport to charge interest on invoices not paid on time.
The airport also said the concessions division will review the deductions taken by Woody Creek to determine what was allowed and collect as applicable.
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