720-913-5000 auditor@denvergov.org

Audit Report

Westin Hotel Revenue

The audit had three objectives:

  1. To determine whether Denver International Airport’s Revenue Management and Finance divisions had effective controls in place to ensure revenues and expenses reported by Westin were reasonable and in compliance with the hotel management agreement;
  2. To verify that the airport’s Director of Commercial Properties was effectively reviewing performance management contract terms to ensure Westin was optimizing revenue; and
  3. To demonstrate that the airport’s Director of Commercial Properties was verifying that Westin’s employees were aware of and effectively implementing internal controls.

Watch the Audit Committee presentation here.

The audit found the airport cannot ensure potential hotel revenues are not being lost due to a lack of financial and performance monitoring.

This is our first audit of the hotel management agreement between the City and Westin.

We identified limitations that impede the City’s ability to monitor compliance with the contract, and we identified controls and processes that should be improved to protect the City’s asset and ensure optimization of financial performance.

Denial of Access to Data Prevents Auditors from Evaluating Marriott’s and Westin’s Operation of the Westin or Providing Assurance that Both Are in Compliance with the Hotel Management Agreement

  • Marriott impeded audit efforts and would not provide information and documentation it considers proprietary.
  • The hotel management agreement contains language that contradicts the City’s audit rights and counters City Charter.
  • Auditors have concerns over the quality of external audits and reviews of Marriott’s and Westin’s internal controls and may be prevented from reviewing detailed reports of additional external financial audits conducted on the hotel.

Airport Management Has Not Clearly Defined Project Monitoring and Asset Management Roles and Responsibilities for the Hotel Management Agreement

  • Policies and procedures for overseeing the hotel management agreement lack details to ensure the hotel’s operational and financial success.
  • Segregation of duties does not exist among the Director of Commercial Properties’ responsibilities related to requesting work from Capital Hotel Management LLC—the asset management company the City hired for the hotel—and reviewing supporting documentation and authorizing reimbursements.
  • The airport may be spending money on unnecessary external resources to monitor the hotel management agreement.

1.1 Amend Contract to Remove Proprietary Restrictions on Information – The airport’s Revenue Management Division should work with the City Attorney’s Office, including Airport Legal Services, to revise the hotel management agreement and remove language prohibiting the hotel owner—including airport and Auditor’s Office personnel—from having access to proprietary financial and operational information, from conducting audits of the hotel, and from reviewing detailed audit results and recommendations issued by external audit firms.

Agency Response: Agree, Implementation Date – May 21, 2019

2.1 Establish Specific Contract Monitoring Roles and Responsibilities – The Director of Commercial Properties should establish and document specific roles and responsibilities related to contract monitoring. Roles and responsibilities should be approved by the Senior Vice President of Airline and Commercial Affairs and should include, but not be limited to:

  • Monitoring and documenting compliance with all performance terms outlined in the hotel management agreement to ensure the safeguarding of the City’s asset;
  • Managing the contract with Capital Hotel Management LLC, or other third-party contracts associated with the hotel management agreement, and ensuring proper documentation of scopes of work and fees, per the City’s Fiscal Accountability Rules; and
  • Ensuring proper approval is provided to all necessary Westin service contracts, per the hotel management agreement.

Agency Response: Agree, Implementation Date – May 21, 2019

2.2 Establish Specific Financial Monitoring Roles and Responsibilities – The Director of Commercial Properties and Senior Vice President of Financial Management should establish and document specific financial roles and responsibilities related to the hotel management agreement. Roles and responsibilities should include, but not be limited to: Monitoring and documenting compliance with all financial terms outlined in the hotel management agreement to include periodic review of supporting documentation of financial transactions for accuracy, allowability, and completeness, per the hotel management agreement.

Agency Response: Agree, Implementation Date – May 21, 2019

2.3 Develop and Document Policies and Procedures for Each Monitoring Role – Following implementation of Recommendations 2.1 and 2.2, the Director of Commercial Properties, Senior Vice President of Airline and Commercial Affairs, and Senior Vice President of Financial Management should develop documented policies and procedures for each role responsible for monitoring the hotel management agreement and managing the asset. The policies and procedures should include, but not be limited to:

  • Identification of responsible parties for monitoring the hotel management agreement;
  • Communication of expectations between parties and management involved in monitoring the hotel management agreement;
  • Specific and detailed steps for ensuring compliance with the hotel management agreement, safeguarding the City’s asset, and managing the contract with Capital Hotel Management LLC or other third-party contracts;
  • Specific time frames or deadlines for process steps;
  • Documentation of expectations for monitoring activities; and
  • A review process to ensure contract monitoring, asset management, and financial monitoring is occurring and that an appropriate segregation of duties exists and is in accordance with Fiscal Accountability Rules.

Agency Response: Agree, Implementation Date – May 21, 2019

2.4 Allowable Reimbursements to Capital Hotel Management LLC – The Senior Vice President of Airline and Commercial Affairs should ensure that reimbursements to Capital Hotel Management LLC, or other third-party contractors, include only allowable expenses and that supporting documentation meets the requirements of Fiscal Accountability Rules.

Agency Response: Agree, Implementation Date – May 21, 2019

2.5 Document On-Site Inspections and Subsequent Resolutions – The Director of Commercial Properties and other individuals conducting inspections of the Westin should document all results and resolutions from each inspection. This documentation should be retained to provide assurance of the safeguarding of the asset and of appropriate actions taken by Westin staff.

Agency Response: Agree, Implementation Date – May 21, 2019

2.6 Identify a Comprehensive Methodology for Monitoring Financial Performance – The Senior Vice President of Airline and Commercial Affairs and Senior Vice President of Finance should identify appropriate methodologies, such as an internal rate-of-return analysis and a review of key performance indicators, for conducting comprehensive financial performance-monitoring activities.

Agency Response: Agree, Implementation Date – Implemented

2.7 Develop Financial Performance-Monitoring Procedures – Following implementation of Recommendation 2.6, the Senior Vice President of Airline and Commercial Affairs and Senior Vice President of Finance should ensure procedures for conducting financial performance-monitoring activities are developed. The procedures should include the methodologies to be used, the frequency for each monitoring activity, and documentation and reporting requirements for results.

Agency Response: Agree, Implementation Date – March 21, 2019

2.8 Conduct Financial Performance-Monitoring Activities – Following implementation of Recommendation 2.7, the Senior Vice President of Airline and Commercial Affairs and Senior Vice President of Finance should ensure that comprehensive financial performance-monitoring activities are conducted in accordance with identified procedures.

Agency Response: Agree, Implementation Date – Implemented

2.9 Formalize and Document Task Order Process – The Senior Vice President of Airline and Commercial Affairs should establish a documented process for utilizing formal task orders for requesting work from Capital Hotel Management LLC and other contracted entities charged with providing contract monitoring or asset management services. Task orders should clearly state, at a minimum, the terms and conditions, as well as an estimate of time and costs associated with the task.

Agency Response: Agree, Implementation Date – May 21, 2019

2.10 Establish Task Order Review and Approval Process – Following implementation of Recommendation 2.9, the Senior Vice President of Airline and Commercial Affairs should establish a process for reviewing and approving task orders to ensure work being requested is necessary and not duplicative of the roles and responsibilities of airport personnel charged with managing the hotel management agreement.

Agency Response: Agree, Implementation Date – May 21, 2019

2.11 Utilize Existing City Resources – The Director of Commercial Properties should leverage existing City resources for identifying and contracting with independent certified public accounting firms or other external auditors to conduct audits and reviews of Marriott’s corporate and site-specific internal control structure and financial statements.

Agency Response: Agree, Implementation Date – May 21, 2019

Follow-up report

A follow-up report is forthcoming. 

Other related reports

Audit Team: Dawn Wiseman, Sonia Montano, Kharis Eppstein, Amy Barnes, Roberta Holbrook