HomeMy WebLinkAbout1977
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• SPECIAL REPORT
AEROSMITH DENTON CORPORATION
September 30, 1977
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Alexander 8pent
10011►A11Y INTlRNATIONAL FIRM
• CERTIF110 ►UILIC ACCOUNTANTS ALEXANDER ORANT TAk91.EY WITT
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The Honorable Major and City Council
• Denton, Texas
At your request, we have performed certain agree)-upon
procedures to the accounting and other records of Aerosmith
Denton Corporation (Aerosmith) as of and for the year ended
September 30, 1977 pursuant to the lease agreement (the "Agree-
ment") dated August 28, 1975 between the City of Denton and
Aerosmith. Our report is presented solely to enable you to
detormine compliance with certain provisions of the Agreement
and is not to be used for any other purpose. Our procedures
and findings, which are set forth in the attached Schedule A,
• ;Pages 3 through 9, were limited to those specifically stated
therein and did not constitute an examination of the financial
statements in accordance with generally accepted auditing
standards, Accordingly, we do not express an opinion on any
specific accounts referred to or the financial statements of
Aerosmith Denton Corporation, nor should this report be utilized
• as or in conjunction with any such financial statements, Had
we performed an audit of the financial statements of Arrosmith
Denton Corporation in accordance with generally accepted auditin;
standards, other matters might have come to our attention which
would have been reported to you.
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• Dallas, Texas
February 13, 1978
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ONE MAIN PLACE OALLAS Tx 15250 (214) 748-0t00
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Roference
to lease
agr&owent
• PART I
F (1) Aerosmith agrees to maintain a standard liability
insurance policy in an amount not less than $100,000
for each person; $,300,000 for each occurrence, and
$100,000 fov property dr-age.
Procedures
We had origLially intended to cunfirm with Aerosmith's
i.nsurlnce agent the Fraistenco and amount of such coverage,
• Howevar, upon Inquiry, we were informed b,, 14r, Maxwell
of the Citi► staff that the City maintains this coverage
in iti oveivall insurance coverage and is reimbursed by
Aerosmith for the applicable portion of the total premium,
Such reimbursements were traced to City records.
• F (2) To comply with current laws and ordinances and all regula-
tions of federal, state, county or city airport authorities/
agenoies and pay all taxes, obtain necessary licenses and
permits for operations.
Procedures
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1) We obtained, through discussion with Mr, Cole and
Mr, Owen from the City staff and Mr, Smith, President
of Aerosmith, a list of taxes and licenses normally
sayable in the operation of an airport,
• 2) Franchise, excise, sales and use tax returns appli-
cable to or falling within the year ended September 30,
1977 were obtained, Sales taxes pa,able per the return
were agreed to the monthly sales journal. Information
shown on the franchise tai: return was compared to the
September 30, 1977 general ledger figures and were reason-
able in relation to the amo,sits shown on the tax return.
Reported fuel usage as set torth in the excise tax returns
was compared to the schedule of fuel sales prepared in
procedures enumerated below for the quarters ended
December 31, 1978, June 30, 1977 and September 30,
• 1977 with a net difference of 1,800 gallons, approxi-
mately 1% of usage for those periods, The return for
the quarter ended March 31, 1977 could trot be located,
Other information on the excise and use tax returns
was traced to applicable 4ziLarnal information with
no exceptions noted, Pro{.^rty taxes were agreod to
renditions.
• 3
3) Cancelled checks were agreed to the above indicated
tat and information returns and renditions except
for excise tax payments which were agreed to validated
m remittance advises for dtrect deposit of amounts into
the bank.
F (6) To provide tie-down service to overnight or other transient
aircraft.
0 Procedures
1) We determined by count that forty-one permanent tie-
down spaces were available.
2) Per discussion with management and examination of
0 sales invoices on n pest bask for overnight space,
there appears to be spaces available for use by
transient aircraft,
F (10) % ivane operate available flight for school training h and rental at least one suitable
ai
144 Procedures
1) We were informed by management that a flight school
was maintained,
0 2) We examined a training aircraft and noted that Aero-
smith was indicated as the owner on the registration
certifit;at e,
3) We examined the certified instructor license of the
flight course instructor and agreed his salary for
• the periods ending June 30, 1977 and September ib,
1977 to the general ledger expense account.
F (11) To operate a new aircraft dealorship, sub-dealership
or distributorship on this airport.
0 Procedures
1) We were informec y management that such a dealership
was maintained,
0 2) We examined the license and dealership agreement
between Aerosmith and Aerosmith Corporation,
3) We agreed the salary of the salenmen for the periods
ending June 301 1977 and September 30, 1977 to the
of sighted
the n sale and
basis general sales ledger invoices for account
"J aircraft.
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F (12) To operate an a/c and a/c engine repair shop - employ
an A&P licensed mechanic,
• Procedures
1) We were informed by manal-2ment that such a facility
was maintained and sighted the facility.
2) We examined the mechanic's air frame and power plant
• license and agreed his salary for the periols ending
June 30, 1977 and September 15, 1077 to the general
ledger expense account.
F (13) To provide gasoline and other petroleum distillates,
stored in underground fuel tanks,
procedures
We examined the site of the underground fuel storage tank.
F (14) To provide vending machines.
• Procedures
We examined the vending machines,
PART III
• Rental cost will be $825 per month plus-
2¢ per gallon on all fuel sold except jet
fuel sold in the first 24 months of the lease
(signed 9/1/75) and aviation fuel used by
Aerosmith, its affiliates and subsidiaries.
5% of the cash receipts derived from aircraft
storage in hangers.
1/12th of the annual insurance cost to the City
• on hangers and T-hangers,
Procedures
1) Aerommith's monthly reports for the year ended
September 30, 1977 of rental due to the City
• were obtained and footed without exception,
Payments of the specified amounts were traced
to City records,
b'30,
2) Fuel were purchases scheduled the year ended Invoices and
977
• amounts reconciled to fuel purchases recorded
in the general ledger without exception,
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3) Aerosmith's daily fuel sales loge were obtained:
a) Seventy days throughout tae year and the
entire month of March (sales were not
summarized by day for tho month of March)
were tested for proper additions of gallons
sold, Discrepancies are summarized below
and should be considered in light of "average"
sales per day of approximately 500 gallons,
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Size of Discrepancy Number
10 gallons and under 7
10 to 20 gallons 2
20 to 50 gallons 1
• 50 to 100 gallons 1
The total discrepancy for the month of Marcn was
approximately 105 gallons,
Of these discrepancies, there were seven
• instances where Aerosmith's totals were lesw
than the computed fiqures and six where its
total were more, for a net discrepancy of 21
gallons,
b) The daily summaries were agreed to the monthly
• summary of sales subject to the 2¢ per gallon
rental coat and the summaries tested for proper
adding for three months. No exceptions were
found. The monthly summaries were then compared
to reported usage, Tho usage reported for the
year ended September 30, 1977 was approximately
• 900 gallons greater than the amount on the monthly
summaries, Beginning in June 1977, rather than
September 1977 as per the lease agreement, jet
fuel sales had also been included in sales sub-
ject to the rental fee.
• e) Sales invoices for three months were tested to
determine if the numerical sequence was complete.
All invoices were accounted for,
d) Sixty-seven invoices were chosen for tracing
• back to the fuel sales log. There were live
instances where the invoice could not be agreed
directly to the sales log because of variou3
reasons, including several sales which were
apparently being cotibined into one sales invoice
with no record being kept as to what items were
• grouped together.
e) Seventy-five fuel sales to Aerosmith ur Aeroamith
Corporation (exempt from the rental fee) were
chosen from the daily fuel salsa log. The "N"
number of eaeb airplane, as noted on the sales
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log for each dale, was traced to documents,
generally factory invoices and delivery advices,
supporting the original purchase, Sales
• invoices and lease agreements, whore
applicable, were examined to verify that
the planes had not been sold or leased
prior to the date of usage, We noted one
sale where the ownership of the plane
• could not be verified and one sale where
the usage was subsequent to date the plane
was sold to outsiders. An explanation of
the latter item was provided but was not
subject to verification. No other excep-
tions were noted.
• 4) We obtained the amount of fuel on hand as of October 1,
1976 from the daily fuel sales log, added the purchases
developed in Procedure (2) above and deducted the amount
of fuel on hand as of September 30, 1977 (we did not
observe the fuel inventory due to its relatively small
• size) to corpute fuel usage for the period, This
computed amount was 3,500 gallons greater than the sales
recorded on the daily sales logs,
5) Fuel sales reported to the pity were used to recalculate
the amount due the City without exception,
• 6) We inspected the airport facilities and determined the
number of hangers available for rental and the current
rental price of the hangers. Aerosmith does not main-
tain past records as to occupancy status of each hanger
nor were lease agreements available for all lessors.
• Additionally, those leasev which were available did
not note the assigned hanger, contained no expiration
dates, in some cases, did not contain other information,
such as the "N" number of the plane to be housed, and
in some cases, did not contain the signature of the
lessor and/or the lessee. Therefore, we were unable
• to determine the occupancy status of hangers on an
individual basis,
As alternative procedures we performed the following
steps:
• a) We obtained the sales journal for each month
and listed all items shown as hanger rental
noting the customer's namfi, account number
aid amount billed, All iicems for the months
of October 19789 February 1977 and September 1977
were traced to sales invoice copies without
• exception,
b) Aerosmith'o numeric files of invoice copies,
for the three months indicated above, were
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scanned and items noted as hangor rentals
were traced to the sales journal All items
noted as hanger rentals were included in the
• sales journal except for a few small invoices,
generally for $10, Rhich ace-ling to Aerosmith
personnel were generally for rernight storage
of planes in the main hangei ay were not
included in the receipts used alculate the
City's rental.
• c) We obtained the daily security reports showing
the planes in the various hangers and compared
the number of hangers occupied to the number of
hangers rented out at that time per the sales
journal. For various days in the months of
• February and March, approximately 10 more plane!s
were indicated in hangers than were billed out.
In all other months, the days tested showed
fewer airplanes in the hangers than were billed
out. According to Aerosmith management, from
time to time, planes being hold for repair or
for sale (by Aeroemich or Aerosmith Corporation)
are temporarily put in hangers for no charge if
the hangers ar+ not rented out,
7) Cash receipts summarizes for collections relating to
the October 1978 February 1977, and August 1977
• billings were seiected for further testing.
a) For ten days from each month, all cash received
per the validated deposit slip was tested to
determine if it was classified correctly. No
exceptions were noted. Support fo)r all cash
receipts for those months was examined to
determine if payment appeared to be applicable
to hanger rental. Additionally, the cash collec-
tions for the month, as reported to the City, were
reconciled to reported billings. There were four
cases where Aerosmith appeared to collect more
• rental than was 1'Leted on the report to the City.
Three related to items where more than one month's
rent was outstanding and apparently received but
only one month's payment was included on tho list
to the City. The total of these differences was
$230, According to Aerosmith personnel, it is
their policy applied afirstmagainstchangerorentaluand
will be
then against "other charges." In one of these
cases, significant "other charges" were outstand-
ing. One discrepancy was a single month's payment
totaling $50 which was not included on the list,
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b) aThe nd the t rental collections recalculated. Aerosmith was
exception,
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totaling $49 was found. Remittancoie for hanger
rental in the three months was $008.00.
PART IX
Aerosmith will build a minimum of 33 T-hangers - construction
to begin within six months, completed by 18 months from lease
date (September 1, 1978).
• Procedures
We determined through physical inspection that there were
currently 46 T-hangers and 7 Breen hangers at the airport.
Per discussion with Mr. Owen and Ar. Colo, at the inception
of the current lease, there were 10 'r-hangers and 7 Breen
• hangers. We examined !.nvoices from the construction firm
for labor charges incurred to erect the hangers. The
earliest invoice noted was for work done in December 1975
and the final invoice appeared to be for work completed
in September 1978.
• PART XVI
Lease may not be assigned without consent.
Procedures
1) According to Mr. Smith, the lease had not been assigned.
He did indicate that there was ait ngrieul,%lural lease
with a local farmer for "that portion of the D9nton
Municipal lirport land which is surplus to airport
needs." Per Mr. Smith, this is not the land hold pur-
suant to the lease agreement but is the balance of the
• airport managed by Aerosmith under the 1965 Agency
Agreement between Aerosmith and the City. ';he general
ledger indicates $1,850 was received under this lease
for the year ended September 30, 1977.
• 2) We read the corporate minutes of Aerosmith from
July 1975 through January 1978. Nr% lease assignment
was noted. The only debt approval was an "open account"
for the purchase of fuel and a 19-year note to Greenville
Avenue bank, Dallas, Texas. Per a confirmat!.on from the
bank, the note has a remaining balance of approxi-
mately $1090000 at 'optember 30, 1977 and is
collateralized by the T- hangers located on the
airport,
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