Outside auditors hired by the city found lax oversight at Charlotte Douglas International Airport with missing documentation, a lack of written policies and, in one case, an ambiguously calculated lease that could have cost the airport $1 million.
The full set of audits was scheduled to be released Thursday. Interim Aviation Director Brent Cagle said auditors didn’t uncover any fraud or deliberate mismanagement. But he said the airport’s credibility is damaged by insufficient oversight.
Cagle said the airport needs more written procedures, internal oversight and managers to supervise Charlotte Douglas, now the eighth-busiest airport in the nation. Many of the report’s recommendations are already underway. For example, the airport is hiring several new workers for a business office that will oversee the 200 revenue-producing contracts at Charlotte Douglas, which cover areas from airline landing fees to concession leases.
Cagle attributed the poor oversight to rapid growth. Charlotte Douglas’ traffic shot up 80 percent in a decade.
“The phenomenal growth of the airport outstripped our internal controls,” said Cagle, who became interim director last year. “It was everything we could do to keep the lights on and the doors open, and that’s what we focused on.”
He attributed the airport’s problems to “growing pains” similar to what might happen as a mom-and-pop store grows into a major corporation. But he said even unintentionally poor management is a problem that must be fixed.
“It erodes confidence,” Cagle said, “and we need to restore that.”
Charlotte City Manager Ron Carlee ordered the audits in October, at the height of the battle for control over Charlotte Douglas. It’s still unclear whether the city or a new, independent commission will ultimately run Charlotte Douglas, but for now at least the fight has gone dormant, with the city still in control.
Focus on Orr era
Much of the review focuses on procedures under former Aviation Director Jerry Orr, who ran the airport from 1989 until July 2013. Orr clashed with city officials during his tenure and supported the independent commission.
After his abrupt departure, Orr said the city was doing the audits to look for dirt on the airport’s operations during his tenure. Told Wednesday that the audits hadn’t found intentional wrongdoing, Orr said the audits proved him correct.
“It looks to me like they spent a half a million dollars to try to discredit me, and ended up shooting themselves in the foot,” Orr said.
The audits so far have cost $245,000, although a “corrective action plan” isn’t complete and the total cost isn’t available yet.
Cagle, whom Orr hired in 2012 as an assistant aviation director, said the audits weren’t meant to cast Orr in a bad light.
“This isn’t about blame,” Cagle said. “I believe, because I’ve seen no evidence otherwise, that the decisions made were appropriate for the time, and they were intended to keep the airport moving forward.”
Carlee said the audits and their conclusions “do not relate to any disagreements with the former aviation director,” and commended Orr for helping the airport grow so quickly.
Under Cagle, spending has increased at Charlotte Douglas, in part to hire new management personnel at the airport. His $129 million budget for fiscal 2015 is 8 percent higher than the year before. About $1 million of that is slated for administration improvements, including hiring an auditor, several staff members to manage contracts, new public affairs staff and more staff in the finance division.
American Airlines, which operates more than 90 percent of flights at Charlotte Douglas and is by far the airport’s most important tenant, has said it supports Cagle’s budget.
“There is such a thing as a cost increase that the airlines can support in Charlotte,” Cagle said. “We’re behind, and we’re spending more money to improve our processes.”
Although the audits, conducted by the McGladrey and the Waters Consulting Group, didn’t identify any fraud, they paint the picture of an airport operating in many cases without detailed oversight. Among the key findings:
• A lease with shipping company DHL contained ambiguities that could have meant the airport was undercharging the company by $3,634 a month, or $1 million over the life of the lease. There were two different schedules in the lease for DHL to pay back the airport for improvements to the hangar. Cagle said the airport ultimately decided that the schedule currently being used – which did not result in undercharging – was the correct schedule, and stuck with that. But Cagle said the discrepancy shows a “lack of attention to detail” and could have exposed the airport to a lawsuit over the rent difference.
• There are no formal, documented policies and procedures at Charlotte Douglas for important functions such as project management, bidder selection on contracts, grant compliance reporting and change orders on contracts. McGladrey said the lack of such written policies “increases risk of errors and omissions.”
• One airport employee was responsible for overseeing the airport’s 200 contracts that bring in revenue.
• Airport employees developed a duplicative “shadow system” to track spending on capital projects, such as major construction, because of compatibility issues with the city’s software.
• The airport’s master file of vendors, used for payments, wasn’t checked for erroneous and duplicate information, which the auditors found. “Duplicate vendors create opportunities for fraud,” McGladrey wrote.
Cagle said that even in cases where the consultants didn’t find waste or misspending, insufficient oversight puts the airport at risk.
“A hundred percent of it represents risk to the airport,” Cagle said of the findings. “In a post-Enron world, there is a need for administrative oversight and internal controls.”
He said new financial and accounting software the city and airport are rolling out should help resolve many of the issues. But he said the airport needs to formalize its administrative policies, which developed informally for years.
“We have homegrown policies. They’re all up here, in someone’s head,” said Cagle.
The issues identified in the audit aren’t the only ones the airport is contending with. Charlotte Douglas is in the midst of a planned $1 billion upgrade, which includes renovations to the terminal, new hourly parking and business valet decks, a new concourse with more gates and a redesigned, larger entrance roadway.
Charlotte Douglas is also rebidding the airport’s taxi contract, after allegations the current contract was tainted by former Mayor Patrick Cannon – who recently pleaded guilty to federal corruption charges – and a pay-to-play scheme.
Robert Stolz, chairman of the Charlotte Airport Commission, said the report illustrates the need to get the question of who will ultimately run Charlotte Douglas resolved quickly. He declined to say whether he thinks the report shows the commission could run the airport more effectively than the city.
“It needs to happen sooner rather than later,” Stolz said. “It’s horrible public policy to let this thing linger.”