Operational Reviews of Charlotte Douglas International Airport Summary Sheet Why were the reviews conducted? Last summer, the City embarked on a multi-­‐phase review of operations at Charlotte Douglas International Airport. The reviews assessed the airport across a number of areas to ensure full compliance with FAA regulations. Both external and internal reviews were conducted of financial operations, personnel systems, and the City’s non-­‐aviation operations at the airport. Who performed the reviews? The review of non-­‐aviation operations at the airport was performed by the law firm of Anderson Krieger. The Waters Consulting firm reviewed organizational structure and compensation practices, and McGladrey reviewed the Cost Allocation Plan, contract administration, project and capital accounting, and procurement. Leadership and staff from the airport and City assisted consultants throughout the review process. Review findings Non-­‐Aviation City Operations at the Airport, the law firm of Anderson Krieger Anderson Krieger Letter This item was identified by the senior assistant city attorney at the airport, who was concerned about the lease calculation methods used for the City’s animal shelter, police helicopter hangar, and the airport fire station #30. An internal examination and outside review revealed that the animal shelter and helicopter leases were undervalued; likely from expansions that occurred over time. There was no evidence that the calculations were an intentional effort for the airport to subsidize these operations, and were self-­‐reported to the FAA. Action taken: Based on more precise calculations and market values, the City will reimburse the airport for rent in the amount of $1.6 million. The fire station #30 review found that the uncharged rent was approximately equal to the value of in-­‐kind services provided by the fire department to the airport. Human Resources, Waters Consulting Group, Pay Administrative Guidelines section, pages 1-­‐8 The review found that many employees were being paid below market compensation rates. And many, primarily bus drivers, were hired indefinitely in temporary status. Action taken: The FY 2015 budget approved by the City Council included recommendations from the interim aviation director to adjust wages closer to market levels and convert long-­‐term personnel from temporary status to regular employment. The Aviation Department and Human Resources Department updated the market analysis methodology to benchmark Charlotte against other large hub airports to enable the airport to attract and retain the highest level of staff, while maintaining its low cost advantage. City Cost Allocation Plan, McGladrey, Turn Over Review, pages 27-­‐29 The City charges the airport and other enterprise operations (CATS, Utilities and Storm Water Services) for support services it provides. This is a common practice, authorized by federal agencies. The reviews found no evidence that the City inappropriately diverted revenues from the airport. However, the City has had a practice of charging the cost allocation based on budget projections that are not subsequently adjusted to their true value based on actual expenditures at the end of the fiscal year. This practice could result in the City either over or under-­‐charging the enterprise. Action taken: The City Manager directed staff to immediately implement new procedures and consistent cost allocation methodologies across the support agencies. Future charges to the airport will be based on actual expenses, not budgeted projections. Contract Administration, McGladrey, Turn Over Review, page 9 In this area, growth of the airport outpaced administrative capacity, and was identified by the review to be a high risk for possible financial loss. Over 200 revenue contracts were managed by a single employee. Lack of adequate staff resources resulted in inconsistent monitoring and validation of contracts, billing discrepancies, and the inability to audit contracts. Action taken: The FY 2015 budget adopted by the City Council included recommendations by the airport’s interim director to create an airport business office with tools to manage contracts effectively, including revisions to contract terms and conditions, enhancing contract management. Project and Capital Accounting, McGladrey, Turn Over Review, pages 13-­‐22 As the airport grew, it did not develop documented policies and procedures to ensure accuracy in allocation of costs to projects and bond accounts. Nor were there sufficient internal checks to ensure full contract compliance and consistency with purchasing and change order policies. Action taken: The interim aviation director instituted new procedures and added personnel to ensure accuracy and accountability in the numerous and complex projects and capital improvements at the airport. The City’s new financial system, operational since July, enhances the new procedures. Procurement, McGladrey, Turn Over Review, Parking Revenue and Purchasing, page 15 Inconsistency in purchasing procedures was identified as a high risk, especially the use of direct payment vouchers. Action taken: The FY 2015 budget includes support for internal auditor resources for on-­‐going compliance with procurement policies. The City’s new financial system will also be a key to compliance. Moving Forward The reviews assisted airport leadership in establishing priorities that bring airport policies and procedures to necessary levels to reflect its size today and its potential future growth. The reviews concluded that there was no evidence of fraud by the City or Aviation department, but improvements can be made in administrative areas to support the airport’s current size. The additional administrative support is the first critical step. Further analysis, prioritization, and discussions with airline partners will determine future needs and costs. The airport remains committed to having the most professionally-­‐
managed facility that protects the future interests of the enterprises and its partners. The reviews enable the airport and the City to effectively manage Charlotte Douglas International, which is the 8th largest airport in the U.S. and the second largest hub for the world’s largest airline.