**PASSENGER FACILITY CHARGE**

**AUDIT GUIDE FOR AIR CARRIERS**

**Federal Aviation Administration**

**Passenger Facility Charge Branch**

**APP-530**

**July 2002**

**TABLE OF CONTENTS**

Applicability and Purpose Page ii

I. Introduction and Requirements 1

II. PFC Program Requirements and Recommended

Internal Controls Audit Procedures 3

A.  Public Agency/FAA Notification to Collect

> PFC's and Collection Changes 3

B.  Collection of PFC's on Tickets Issued in

> the United States 5

C.  Collection of PFC's on Tickets Issued Outside

> the United States 7

D.  Handling of PFC's 10

E.  Remittance of PFC's 11

F.  Collection Compensation 12

G.  Reporting Requirements 12

H.  Recordkeeping and Auditing Requirements 13

III\. PFC Program - Agreed-upon Procedures 14

IV\. Reporting Criteria and Format 17

Appendices 18

> Appendix A
>
> *Introduction* - Passenger Facility Charges 18
>
> Illustrative Report on PFC Schedules 18
>
> Illustrative Report on Internal Control
>
> Used in Administering PFC's 20
>
> Appendix B - Illustrative Report -- Independent

## Accountant's Report on Applying Agreed-Upon 

> Procedures 22

**APPLICABILITY AND PURPOSE**

This guide provides auditors with a comprehensive set of procedures for
examining air carrier\'s Passenger Facility Charges (PFC) collection,
remittance, and reporting practices in accordance with 14 Code of
Federal Regulations (CFR) Part 158, \"Passenger Facility Charges\"
requirements.

The use of this guide by auditors on behalf of the air carriers provides
the Federal Aviation Administration (FAA) and airports collecting PFC's
with an acceptable level of assurance that the air carrier has followed
regulatory procedures. The importance of this level of assurance is
reflected in the FAA's approach to resolving alleged collection and
remittance discrepancies raised by airports through their monitoring of
PFC revenue on a local basis.

This guide is not intended to define the sole method of complying with
the audit requirements of section 158.69. However, the FAA has
determined that the use of the procedures in this audit guide by the
auditors for an air carrier will provide sufficient assurance that the
air carrier has met the requirements of 14 CFR 158 such that the FAA
would not normally require additional reports, undertake an audit of the
carrier, or request Department of Transportation, Office of the
Inspector General (DOT OIG), intervention on the FAA's behalf. The FAA
would not normally initiate further monitoring efforts unless an airport
or other source subsequently substantiates a significant violation of
the regulation.

The FAA will not have the same level of confidence with a carrier whose
auditors have not used the procedures outlined in this guide.
Accordingly, alleged collection and remittance discrepancies raised by
airports through their monitoring of local PFC revenue against carriers
whose auditors have not used this guidance are more likely to trigger
additional FAA monitoring activities, including requiring additional
reports, the undertaking of an audit, or a request for DOT OIG
intervention. This guidance shall not, however, foreclose other FAA
options for responding to allegations of improper collection and
remittance practices and enforcing correct collection and remittance
procedures. The FAA expects carriers to attain a reasonable level of
accuracy with regard to PFC remittances.

This guide also recommends that auditors produce an additional report on
applying the agreed upon procedures set forth in section III of this
guide to the air carriers\' PFC accounting records, in addition to the
two reports required by section 158.69. These reports, and illustrative
samples of each, are more fully explained in this guide and its
appendices.

**PASSENGER FACILITY CHARGE AIR CARRIER AUDIT GUIDE**

**I. INTRODUCTION AND REQUIREMENTS**

Title 49, United States Code (U.S.C.), Section 40117, authorizes the
Secretary of Transportation (further delegated to the Federal Aviation
Administration (FAA) Administrator) to approve the local imposition of a
PFC of \$1, \$2, or \$3 per enplaned passenger for use on certain
airport projects. On May 29, 1991, the FAA issued 14 CFR Part 158
outlining policies and procedures for the PFC program. On May 30, 2000,
the FAA issued a revision to Part 158 that, among other items, enabled
public agencies to impose a PFC of \$4 or \$4.50 upon meeting additional
requirements. Under Part 158, public agencies controlling commercial
service airports can apply to the FAA for authority to impose a PFC for
use on eligible projects. The proceeds from such PFC's are to be used to
finance approved, eligible airport-related projects. Prior to submitting
an application to the FAA, a public agency must provide for consultation
with the air carriers serving the airport(s) it controls, including the
receipt of air carrier comments and the public agency\'s response
indicating reasons for proceeding with projects in the face of air
carrier certifications of disagreement.

Once a public agency\'s application for the imposition of a PFC is
approved, it must notify air carriers and foreign air carriers required
to collect PFC's at its airport(s) of the approval. Once notified, an
air carrier is required to collect PFC's on tickets it issues showing an
enplanement at that airport (with certain exceptions). The air carrier
is also required to notify its agents, including other issuing carriers,
of the collection requirements. Air carriers or their agents collect
PFC's from passengers on behalf of the public agency at the time of air
travel ticket (or its equivalent) issuance. The air carriers are
responsible for all PFC funds from the time of collection to remittance
to the public agency and must provide quarterly reports to the public
agency showing the total amounts of PFC revenue collected and refunded,
as well as any amount withheld by the air carrier as collection
compensation in accordance with section 158.53 of 14 CFR Part 158. For
the purposes of an audit under section 158.69, collection is defined as
the point when agents or other intermediaries remit PFC revenue to the
carrier.

An air carrier collecting PFC's from at least 50,000 passengers annually
is required to provide for an annual audit of its PFC accounts by an
accredited independent public accountant. The audits shall be made
available to the public agency, upon request. Although not specifically
required by the regulation, the audit should also be submitted to the
FAA, upon request. Auditors engaged to audit the air carrier\'s PFC
accounts are required to report \"on the fairness and reasonableness of
the carrier\'s procedures for collecting, holding, and dispersing PFC
revenue\" (section 158.69(b)(1)). In addition, auditors are required to
report whether the quarterly reports of PFC accounts that the air
carriers must provide to airports \"fairly represent the net
transactions in the PFC account\" (section 158.69(b)(1)). As a matter of
policy, the FAA expects these audits to be filed in a timely manner and
should normally coincide with the carrier's fiscal year and annual
corporate audit cycle.

These requirements are generally satisfied as follows:

1.  An audit in accordance with generally accepted auditing standards
    (GAAS) of the schedule of PFC's collected, withheld,
    refunded/exchanged, and remitted by the carrier for the year and
    each quarter ended during the year; and

2.  An internal control structure attestation examination engagement in
    accordance with American Institute of Certified Public Accountants
    (AICPA) Statements of Standards for Attestation Engagements.

The procedures contained in this guide for testing and reporting on
PFC's collected, withheld, refunded/exchanged, and remitted during the
year are intended to assist the auditor in accomplishing the audit and
internal control structure attestation. This guide is not intended to
supplant the auditor\'s judgment of procedures to be performed. The
auditor should use professional judgment to tailor the procedures so
that the audit objectives are achieved. However, the auditor must
address all applicable internal control requirements. If the auditor
desires technical assistance pertaining to the PFC program, its
regulations or operations, or the use of the procedures outlined in this
guide, the auditor should contact the FAA Office of Airport Planning and
Programming, Airport Financial Assistance Division, Passenger Facility
Charge Branch (APP-530), 800 Independence Avenue, SW, Room 619,
Washington, DC, 20591, telephone (202) 267-3845, or the appropriate
local FAA airports office.

This guidance also provides for the testing of nonstatistical samples of
lifted tickets or equivalent records as an agreed-upon procedure for
providing an airport-level assessment of air carrier compliance with
Part 158 collection and remittance requirements. These procedures are
outlined in section III of this guide. An air carrier utilizing these
procedures should provide copies of the agreed upon procedures report to
requesting public agencies. The carrier should also provide a copy of
the reports to the FAA, if requested. In addition, the carrier should
provide the name, address, and telephone number of a contact person
within its organization who may be contacted concerning questions on PFC
issues and the audit report.

**[II. PFC PROGRAM REQUIREMENTS AND RECOMMENDED INTERNAL CONTROLS AUDIT
PROCEDURES]{.smallcaps}**

**A. PUBLIC AGENCY/FAA NOTIFICATION TO COLLECT PFC\'S AND COLLECTION
CHANGES**

**[Program Requirements]{.underline}**

Program requirements are provided in section 158.43, "Public agency
notification to collect PFC's." Public agencies are required to notify
the air carriers and foreign air carriers required to collect PFC's upon
approval of collection authority by the FAA. Correspondingly, each
notified carrier is required to notify its agents, including other
issuing carriers (other carriers that issue tickets on their own ticket
stock for transportation provided by the air carrier), of the collection
requirements.

In addition, air carriers are required by section 158.85(f) to terminate
or modify PFC collection no later than 30 days after receiving
notification from the FAA under termination procedures. In other cases,
the public agency is responsible for notifying the air carriers of
changes in collection requirements after receiving FAA approval. In all
cases, the carrier should have a system for receiving and tracking all
collection notices (either through its computer reservation system or by
other alternative means), both from public agencies and the FAA.

The section 158.43 notification requirements, as a practical matter,
have been facilitated through the establishment of a notification
"clearinghouse" by the Air Transport Association of America (ATA). The
ATA clearinghouse notifies all its member carriers, other air carrier
associations, the Airline Reporting Corporation, and the major computer
reservation systems. The FAA acknowledges that this process effectively
meets the requirements of section 158.43 for air carriers. In turn, each
individual carrier notified by the collecting public agency and/or the
ATA is responsible for ensuring that all its ticket agents that issue
tickets on its ticket stock are directly notified. This is generally
accomplished through the carrier's computer reservation system. However,
many carriers do not own or control computer reservation systems
themselves and must provide an alternative method for notifying their
ticket agents.

These notification requirements have not been further refined in section
158.43 for the carrier\'s notification of its agents. However, the
following information constitutes the minimum required under section
158.43(b) to be provided to the air carrier by the public agency:

1.  The level of PFC to be imposed;

2.  The total revenue to be collected;

3.  The charge effective date (which will be the first day of a month
    which is at least 60 days from the date the public agency notifies
    the carriers of approval to impose the PFC unless altered by
    unanimous consent of the carriers); and

4.  The proposed charge expiration date.

At a minimum, the information in items 1, 3, and 4 above should be
provided by the air carrier to its ticket agents, either through its
computer reservation system or by alternative means. In addition, the
air carrier should provide instructions for ticket agents enabling the
responsible carrier to fulfill its regulatory collection and reporting
requirements.

In the case where another carrier issues tickets on its own ticket stock
for transportation provided by the air carrier, it is the other issuing
carrier that is required to remit the PFC to the public agency. An air
carrier should provide other issuing carriers with the information in 1,
3, and 4 above, as well as instructions for remittance of the collected
PFC's to the public agency, including the remittance address given by
the public agency.

Although section 158.43(b) requires that this notification be done in
writing, equivalent electronic notification (including computer
reservation system notification) is acceptable, but must be documented
to the satisfaction of the FAA. The previously outlined notification
process also applies in cases when the public agency makes changes to
the PFC charge expiration date. The notified carriers are required to
provide notification to their ticket agents of such changes.

**[Objectives]{.underline}**

The air carrier maintained an effective internal control structure for
notifying its ticket agents in accordance with the requirements of
section 158.43(a) and (b), relative to PFC imposition authority.

The air carrier maintained an effective internal control structure over
the requirements in section 158.85(f) relative to notice of termination
of authority to impose a PFC and other collection notices received from
the public agency or the FAA.

**[Recommended Internal Controls Procedures]{.underline}**

Review the process for notification of collection requirements from the
carrier to its agents. For those carriers utilizing the ATA
clearinghouse, verify that the computer reservation system used by the
carrier and its agents provides sufficient information to fulfill PFC
collection requirements as noted above. For those carriers not utilizing
the ATA clearinghouse:

1.  Verify that the carrier\'s method of notification meets the
    requirements of Part 158 and includes sufficient information for the
    carrier and its agents to fulfill their collection requirements as
    noted above; and,

2.  Review the process for notifying agents (including computer
    reservation system notification) regarding changes in the PFC
    collection requirements.

Test a sample of computer reservation system notifications or review a
sample of actual notifications to agents to determine that the carrier
has an effective notification process in accordance with section 158.43.
Alternatively, when the carrier relies heavily on computer reservation
system notification, the auditor may test the computer reservation
system.

Determine whether the carrier has received prompt notifications for
modification or termination of PFC collections.

Test to determine that collections for those public agencies for which
collection notices were received were implemented or effected no later
than 60 days after notification (unless altered by unanimous consent of
the carriers).

**B. COLLECTION OF PFC\'S ON TICKETS ISSUED IN THE UNITED STATES**

**[Program Requirements]{.underline}**

The requirements outlined in section 158.45 pertain to the collection of
PFC's on tickets issued in the United States. Tickets (or equivalent
records such as electronic ticketing documents) issued in the United
States on or after the charge effective date shall include the required
PFC except in the cases of multiple itinerary legs, essential air
service compensation, frequent flier award travel (discussed further
below), and other non-revenue travel. Issuing carriers are responsible
for PFC revenue from the time of collection to remittance to the public
agency. For the purposes of an audit under section 158.69, collection is
defined as the point when agents or other intermediaries remit PFC
revenue to the carrier. The amount collected is the PFC in effect at the
time the ticket (or equivalent record) is issued and is based on the
itinerary at the time of issuance. Itinerary changes initiated by the
passenger that require a fare adjustment are subject to collection or
refund of the PFC as appropriate.

A carrier may issue a flight interruption manifest or accept one issued
by another carrier (or other routing change document issued by that
carrier or another carrier) for a routing change not initiated by the
passenger. In such a case, the manifest or routing would not require
additional PFC collection(s). PFC collection, in that case, would be as
originally ticketed.

Each ticket (or equivalent record) issued by a carrier or its agents
shall note the total amount of PFC's paid by the passenger and the
airports for which the PFC's are collected.

The collection of PFC's by the air carriers is limited or not required
in certain situations as noted above. Carriers are limited to collecting
PFC's from passengers only for the first two airports where PFC's are
imposed on a one-way itinerary and only for the first two enplaning
airports and the last two enplaning airports where PFC's are imposed on
a round trip itinerary. Carriers shall not collect PFC's from passengers
on any flight to an eligible point on an air carrier that receives
essential air service compensation on that route under Title 49 U.S.C.
Chapter 417, Subchapter II, "Small Community Air Service."

Title 49 U.S.C. 40117(e)(2)(C), precludes collection of a PFC from a
passenger enplaning at an airport if the passenger did not pay for the
air transportation which resulted in such enplanement. The FAA
interprets this provision to prohibit the collection of PFC's from
passengers considered to be non-revenue passengers under existing
Department of Transportation Regulations and from passengers who
obtained their ticket with an award coupon issued under a frequent flier
or similar bonus award program (\"frequent flier award coupon\"). This
prohibition does not apply to frequent flier upgrades, two-for-ones,
contests, or other promotional plans.

For those passengers from whom a PFC is collected, air carriers are
required to distribute the collected PFC's as noted on the ticket (or
its equivalent record).

Issuing carriers and their agents are required to stop collecting PFC's
at an airport on the charge expiration date stated in a notice from the
public agency or as required by Part 158.43(c).

**[Objective]{.underline}**

The air carrier maintained an effective internal controls structure over
PFC collection to ensure that the carrier met the requirements of
section 158.45 for tickets issued in the United States.

**[Recommended Internal Controls Procedure]{.underline}**

Review the carrier\'s internal controls structure, policies, and
procedures for recording PFC collections and refunds, including key
controls to be tested, in accordance with the requirements of section
158.45, and evaluate the design effectiveness of the policies and
procedures.

Test and evaluate the operating effectiveness of the internal controls
structure, policies, and procedures by selecting a nonstatistical sample
of tickets issued by the air carrier (or equivalent sales records) in
the United States. Also, test and evaluate the operating effectiveness
of the internal controls structure, policies, and procedures for
recording agency remittances made in the United States. The following
items should be considered for tickets issued by the air carrier:

1.  Determine that for each one-way trip, the carrier recorded PFC's
    only from the first two enplaning airports collecting PFC's;

2.  Determine that for each round trip, the carrier recorded PFC's only
    from the first two enplaning airports collecting PFC's on the
    outbound flight and, conversely, from the last two enplaning
    airports collecting PFC's on the return;

3.  Test whether the carrier recorded PFC charges appropriately, based
    on the charge in effect at the time the ticket (or equivalent
    record) was issued;

4.  Test whether the system properly adjusted PFC records for
    passenger‑initiated itinerary changes that resulted in additional
    PFC charges or PFC refunds;

5.  Test whether tickets (or equivalent records) reflecting PFC charges
    also listed the total amount of PFC's paid and the airports for
    which each was collected;

6.  Test whether PFC charges were not collected where exceptions
    applied, including essential air service passengers, non-revenue
    passengers, and frequent flier award coupon passengers;

7.  Trace PFC records from tickets (or equivalent records) to accounting
    records, and test that PFC's were credited to the correct airport
    subaccounts; and

8.  For tickets issued by an agency, test that agency remittances to the
    air carrier were credited to the correct airport subaccounts.

**C. COLLECTION OF PFC\'S ON TICKETS ISSUED OUTSIDE THE UNITED STATES**

**[Program Requirements]{.underline}**

The requirements outlined in section 158.47 pertain to the collection of
PFC's on tickets issued outside the United States. Carriers may follow
either section 158.45 or section 158.47 for tickets issued outside the
United States; however, they may not vary between these methods.
Moreover, a carrier that issues tickets outside of the United States
solely for travel within the United States must follow section 158.45.
If the carrier opts for or is required to follow the method under
section 158.45, it must follow the audit procedures described in section
B above.

Under section 158.47, carriers are only required to collect PFC's on
tickets for the public agency controlling the last airport at which the
passenger is enplaned prior to departure from the United States.
Carriers issuing tickets outside the United States must collect the PFC
either at the time of ticket (or equivalent record) issuance or at the
time of enplanement, from the last airport at which the passenger
enplaned prior to departure from the United States. The section 158.47
collection option may be varied among the carrier\'s flights. The
carrier is responsible for providing the passenger with a record of the
transaction in either case. Additionally, if the carrier chooses to
collect PFC's at the time of ticket issuance, the carrier is not
required to collect PFC's at the time of enplanement for tickets sold by
other carriers or their agents. Issuing carriers are responsible for PFC
revenue from the time of collection to remittance to the public agency.
For the purposes of an audit under section 158.69, collection is defined
as the point when agents or other intermediaries remit PFC revenue to
the carrier. In the event the air carrier collects the PFC at the time
of ticket issuance, the amount collected is the PFC in effect at the
time the ticket (or its equivalent) is issued and is based on the
itinerary at the time of issuance. In the event the air carrier collects
the PFC at the time of passenger enplanement, the amount collected is
the PFC in effect at the time of enplanement. Itinerary changes
initiated by the passenger that require a fare adjustment are subject to
collection or refund of the PFC as appropriate.

A carrier may issue a flight interrupt manifest or accept one issued by
another carrier (or other routing change document issued by that carrier
or another carrier) for a routing change not initiated by the passenger.
In such a case, the manifest or routing would not require additional PFC
collection(s). PFC collection, in that case, would be as originally
ticketed.

Each ticket (or equivalent record) issued by a carrier or its agents (or
in the case of a carrier collecting at the gate, the record of
transaction) shall note the total amount of PFC's paid by the passenger
and the airports for which PFC's are collected.

Although not as common as with domestically issued tickets, the
collection of PFC's by the air carriers on tickets issued outside the
United States still may be limited in certain situations. Title
49 U.S.C. 40117(e)(2)(C), precludes collection of a PFC from a passenger
enplaning at an airport if the passenger did not pay for the air
transportation which resulted in such enplanement. The FAA interprets
this provision to prohibit the collection of PFC's from passengers
considered to be non-revenue passengers under existing Department of
Transportation Regulations and from passengers who obtained their ticket
with an award coupon issued under a frequent flier or similar bonus
award program (\"frequent flier award coupon\"). This prohibition does
not apply to frequent flier upgrades, two-for-ones, contests, or other
promotional plans.

For those passengers from whom a PFC is collected, air carriers are
required to distribute the collected PFC's as noted on the ticket (or
equivalent record).

Issuing carriers and their agents are required to stop collecting PFC's
at an airport on the charge expiration date stated in a notice from the
public agency or as required by the FAA.

**[Objective]{.underline}**

The air carrier maintained an effective internal controls structure over
PFC collection to ensure that the carrier met the requirements in
sections 158.45 and 158.47, as applicable, on tickets issued outside the
United States.

**[Recommended Internal Controls Procedures]{.underline}**

Determine whether the carrier is using the ticketing method outlined in
section 158.45 or section 158.47. If the carrier has used section 158.45
for collection of PFC's on tickets issued outside the United States,
then perform the audit procedures outlined in section B above.

If the carrier has used the method in section 158.47, perform the
procedures described below.

Review the internal controls structure, policies, and procedures for
recording PFC collections and refunds, including key controls to be
tested. Note compliance features stipulated under section 158.47,
including whether the carrier has provided a written record of the PFC
collection to the passenger as required by section 158.47(c)(3).
Evaluate the design effectiveness of the internal controls structure,
policies, and procedures.

Test the effectiveness of the collection at the gate process for the
carrier, when applicable. Ensure that proper controls exist to collect,
document, and provide receipts for passengers when the carrier collects
PFC's at the gate.

Test and evaluate the operating effectiveness of the internal controls
structure, policies, and procedures by selecting a nonstatistical sample
of tickets (or equivalent sales records) if possible, issued outside the
United States. The following items should be considered for tickets
issued by the air carrier:

1.  Test whether the carrier recorded PFC charges for the last airport
    at which the passenger enplaned prior to departure from the United
    States. NOTE: the carrier may collect the PFC either at the time of
    ticket issuance (or equivalent record) or at the time of enplanement
    and that the method may be varied among the carrier\'s flights;

2.  Test whether the carrier recorded PFC charges appropriately based on
    the charge in effect at the time the ticket (or equivalent record)
    was issued or, for at the gate collection, when the passenger was
    enplaned;

3.  Test whether the carrier properly adjusted PFC records for passenger
    itinerary changes which resulted in additional PFC charges or
    refunds (this procedure is not applicable for PFC's collected at the
    gate);

4.  Test whether the carrier provided the passenger with a record of the
    PFC transaction;

5.  Test whether PFC charges were not collected where exceptions applied
    for non-revenue passengers, frequent flier coupon passengers, and
    (if using the enplanement collection method) tickets issued by
    another carrier required to collect PFC's; and

6.  Trace PFC records from tickets (or equivalent records) to accounting
    records, and test that PFC's were properly credited to the correct
    airport subaccounts.

**D. HANDLING OF PFC\'S**

**[Program Requirements]{.underline}**

Collecting carriers are required to establish and maintain a financial
management system to account for PFC's in accordance with the Department
of Transportation\'s Uniform System of Accounts and Reports (14 CFR Part
241, the Form 41 Reporting Process). For carriers not subject to Part
241, such carriers are required by section 158.49(a) to establish and
maintain an accounts payable system to handle PFC revenue subaccounts
for each public agency to which such carrier remits PFC collections.

PFC revenue must be accounted for separately by a collecting carrier,
but the revenue may be commingled with the carrier\'s other funds. The
collecting carrier holds PFC revenue collected as trust funds for the
beneficial interest of the public agency imposing the PFC (49 USC
§40117(g)(4)). All PFC revenue collected and held by the air carrier is
property of public agencies in which the carrier holds neither a legal
nor equitable interest except for as provided in 40117(g)(4). Collecting
carriers shall disclose the existence and amount of PFC funds held in
trust in their financial statements (Section 158.49 b and c). The FAA
has determined that carriers may use the Form 41 reporting process to
make this disclosure. Alternatively, a carrier may utilize its annual
publicly-released financial statements.

**[Objective]{.underline}**

The air carrier maintained an effective internal controls structure to
properly account for, handle, and disclose PFC revenue by the collecting
carrier in compliance with 14 CFR Part 241.

**[Recommended Internal Controls Procedure]{.underline}**

Review the internal controls structure, policies, and procedures
relative to accounting for PFC's for compliance with 14 CFR Part 241
standards. Verify that the accounting system properly separates PFC
revenue collected into separate accounting records payable to each
public agency to which the carrier must remit PFC's (NOTE: these funds
may be commingled with the carrier\'s other funds until remitted, and
the carrier is entitled to interest earned while the PFC revenue is in
its possession, but only until remitted to the public agency as defined
in section 158.51).

Verify that the carrier has identified PFC funds as held in trust in
either Form 41 or annual publicly-released financial statements.

**E. REMITTANCE OF PFC\'S**

**[Program Requirements]{.underline}**

Air carriers collecting PFC's are required by section 158.51 to remit
the revenue collected to the appropriate public agency on a monthly
basis. PFC revenue collected by the carrier shall be remitted to the
public agency no later than the last day of the calendar month following
the month in which the PFC was collected (or if that date falls on a
weekend or holiday, the first business day thereafter).

**[Objective]{.underline}**

The air carrier maintained an effective internal controls structure over
the remittance of PFC revenue with respect to the requirements in
section 158.51.

**[Recommended Internal Controls Procedure]{.underline}**

Review the air carrier's internal controls structure, policies, and
procedures for remitting PFC revenue collected and evaluate the design
effectiveness of the policies and procedures.

Evaluate the operating effectiveness of the policies and procedures by
testing whether the carrier's remittance procedures ensure that PFC
revenue collected is remitted to public agencies no later than the last
day of the month following collection (or next business day).

Test by a substantive method that PFC revenue collected is remitted no
later than the last day of the calendar month following collection (or
if that date falls on a weekend or holiday, the first business day
thereafter).

**F. COLLECTION COMPENSATION**

**[Program Requirements]{.underline}**

As compensation for collecting, handling, and remitting PFC revenue, air
carriers are entitled to retain a set amount of compensation for each
PFC. Air carriers are also entitled to any interest or other investment
return earned on PFC revenue between the time of collection and the date
of required remittance to the public agency. The compensation level is
set by rule in Part 158 or as subsequently amended. Auditors are
requested to refer to the current version of Part 158 to verify this
compensation level.

**[Objective]{.underline}**

The air carrier maintained an effective internal controls structure over
collection compensation with respect to the requirements in section
158.53.

**[Recommended Internal Controls Procedure]{.underline}**

Review the air carrier's internal controls structure, policies, and
procedures for withholding PFC collection compensation and evaluate the
design effectiveness of the policies and procedures.

**G. REPORTING REQUIREMENTS**

**[Program Requirements]{.underline}**

Carriers collecting PFC's on behalf of public agencies are required by
section 158.65 to file quarterly reports to those agencies, unless
otherwise agreed upon by the carrier and public agency, providing an
accounting of funds collected and funds remitted to the public agency.
These reports, unless otherwise agreed upon by the carrier and public
agency, shall state the collecting carrier and public agency involved,
the total PFC revenue collected, the total amount of PFC revenue
refunded to passengers, and the amount of collected revenue withheld by
the collecting carrier as collection compensation. This report must
contain the dates and amounts of each remittance for the quarter or
other agreed upon timeframe. Although Part 158 allows latitude
concerning the timeframes and the presentation of the information on the
quarterly reports, the reporting requirement cannot be waived.

**[Objective]{.underline}**

The air carrier maintained an effective internal controls structure over
financial reporting with respect to the requirements outlined in section
158.65 for quarterly reporting.

**[Recommended Procedures]{.underline}**

Review the internal controls structure, policies, and procedures for
collection and remittance reporting requirements and evaluate the design
effectiveness of the policy and procedures.

On a test basis, reconcile items and amounts listed on the quarterly
reports with accounting records to ensure that the reports accurately
reflect PFC transactions.

**H. RECORDKEEPING AND AUDITING REQUIREMENTS**

**[Program Requirements]{.underline}**

Each carrier that collects PFC's from at least 50,000 passengers
annually is required to provide for an audit of its PFC account at least
annually. The carrier is required to provide a copy of this audit to
each public agency upon request.

**[Objective]{.underline}**

The air carrier provided a copy of its annual PFC audit to all
requesting public agencies.

**[Recommended Procedures]{.underline}**

Review the internal controls structure, policies, and procedures for
recordkeeping and auditing requirements, and evaluate the design
effectiveness of the policy and procedures.

III. **PFC PROGRAM - AGREED-UPON PROCEDURES**

The following agreed-upon procedures have been developed as an integral
part of this audit guide in order for these audit guidelines to provide
airport-level assurance that the air carrier utilizing the guidelines
has complied with the PFC statute and regulation. The FAA will use its
discretion in evaluating whether results of the agreed-upon procedures
conform to a reasonable level of compliance with the PFC statute and
regulation. Reasonable compliance does not preclude the presence of
minor or occasional errors in PFC collections.

These procedures involve the examination of lifted ticket samples and
other boarding records for a group of airports served by the carrier (to
be defined further below) to provide further assurance that the carrier
is in compliance with PFC statutory and regulatory requirements with
regard to specific airports.

The auditor should be familiar with the sampling guidelines contained in
the AICPA publication \"Audit and Accounting Guide - Audit Sampling,\"
sections 3.28 and 3.29 for a \"haphazard sample.\"

For air carriers classified as \"Majors\" or \"Nationals\" under the
Bureau of Transportation Statistics, U.S. Department of Transportation
reporting criteria[^1], the procedures include items 1 and 2 below:

1.  Select one flight during the year from each of the five PFC
    collecting airports based on prior year revenues with the greatest
    number of PFC payments for the carrier; and

2.  Select one flight during the year from each of five PFC collecting
    airports served by the carrier not selected in (1) above with at
    least \$30,000 in annual PFC payments for the carrier. This
    selection should be rotated until all other airports have been
    selected at least once.

For air carriers classified as \"Large Regionals\" or \"Medium
Regionals\" under the Bureau of Transportation Statistics, U.S.
Department of Transportation reporting criteria[^2], the procedures
include items 1 and 2 below:

1.  Select one flight during the year from each of the two PFC
    collecting airports based on prior year revenues with the greatest
    number of PFC payments for the carrier; and

2.  Select one flight during the year from each of two collecting
    airports served by the carrier not selected in (1) above with at
    least \$15,000 in annual PFC payments for the carrier. This
    selection should be rotated until all other airports have been
    selected at least once.

In the case where a wholly-owned subsidiary air carrier is not audited,
from a PFC perspective, separately from its parent air carrier, at least
one of the flights selected above for the parent must be provided by the
subsidiary carrier. This flight would typically be selected from the
rotating sample of airports (see 2 above) unless the subsidiary provides
the preponderance of PFC collections at the highest collection airports
(see 1 above).

For all air carriers:

3.  For each flight selected in 1 and 2 above (either case), obtain all
    of the lifted tickets, passes, or equivalent records for all of the
    passengers on that flight, including non-revenue passengers, and
    perform the following:

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(a) Organize passenger records for the flight into groups as follows:

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(1) Lifted tickets or equivalent records sold by other airlines and
    passengers traveling on documents issued by other airlines such as
    flight interruption manifests. (Note: In the case of an air carrier
    which is wholly- or partly-owned by another air carrier, and for
    which the owning air carrier issues, under the owning carrier\'s
    name, some or all of the tickets, passes, or equivalent records used
    by passengers for travel on the owned carrier, such records must be
    treated as issued by the owned carrier, and are categorized under
    (a)(4) below. In such instances, the procedures under section (c)
    should be applied, either by or in coordination with, the owning air
    carrier);

(2) Non-revenue passengers;

(3) Passengers using frequent flier or similar bonus award program
    coupons to obtain their ticket; and

(4) Lifted tickets or equivalent records sold by the carrier.

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(b) For lifted tickets or equivalent records in (a)(1), determine if the
    record contains information about PFC payment. If so, determine if a
    PFC was or was not collected, but without determining if the
    collection or non-collection was appropriate by comparison to the
    code of Federal Regulations Part 158, \"Passenger Facility Charges\"
    requirements.

(c) For lifted tickets or equivalent records in (a)(4), determine the
    following:

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(1) If a PFC was collected, determine that the collection was
    appropriate by comparison to the code of Federal Regulations Part
    158, \"Passenger Facility Charges\" requirements;

(2) If no PFC was collected, determine that the non-collection was
    appropriate by comparison to the code of Federal Regulations Part
    158, \"Passenger Facility Charges\" requirements; and

(3) For lifted tickets and equivalent records where no PFC was
    collected, but deemed appropriate to be collected, provide
    commentary if considered relevant, such as the ticket was sold by a
    travel agent and no PFC was collected.

(4) The report on agreed-upon procedures should include by flight the
    composition of the lifted tickets, passes, or equivalent records as
    determined in (a)(1), (a)(2), (a)(3) and (a)(4) above.

Auditors are referred to AICPA Statement on Auditing Standards - 75,
\"Engagements to Apply Agreed-Upon Procedures to Specified Elements,
Accounts, or Items of a Financial Statement\" for guidance on reporting
the results of the agreed-upon procedures. An illustrative report is
included as Appendix B to this publication.

**IV. REPORTING CRITERIA AND FORMAT**

The FAA requests that an auditor utilizing these guidelines issue
reports in the prescribed format outlined in the appendices. In addition
to the appendices, auditors may refer to examples of representative
reports contained in the \"AICPA Industry Audit Guide - Audits of
Airlines\" most recent issue. Two example reports, as well as a short
narrative, are provided on pages 7 through 9 of that document and are
reproduced herein as Appendix A. The reproduced example reports have
been modified to include language indicating that the audit was
performed in accordance with GAAS and the FAA Passenger Facility Charge
Audit Guide for Air Carriers.

In addition to the reports issued as above, auditors are to issue a
report on the agreed upon procedures performed in accordance with
section III of this guide. An example of this report is attached as
Appendix B.

**APPENDIX A**

*The following illustrative reports and associated guidance were
reproduced with permission from the AICPA Industry Audit Guide \"Audits
of Airlines.\" The FAA has modified these reports to reference the
recodified PFC legislation, year date, and the Federal Aviation
Administration Passenger Facility Charge Audit Guide for Air Carriers.
The FAA has also reworded the reports to reference the FAA and to note
that the reports are a matter of public record.*

**Passenger Facility Charges**

The FAA issued final rules establishing a PFC program in 1991. The PFC
program authorizes local airport authorities to impose specified
per-passenger charges at commercial service airports to finance airport
improvements. Beginning in 1992, the rules require carriers (including
non-U.S. airlines) that collect more than 50,000 passenger facility
charges to provide for an annual audit of their PFC accounts. Auditors
engaged to audit PFC accounts are required to report "on the fairness
and reasonableness of the carrier's procedures for collecting, holding,
and dispersing PFC revenue." In addition, auditors are required to
report whether the quarterly reports that must be filed by the carriers
"fairly represent the net transaction in the PFC account." The AICPA has
worked with the FAA and industry representatives to develop the
following illustrative reports that satisfy both existing professional
literature and the FAA's requirements.

**Illustrative Report on PFC Schedules**

[Report of Independent Accountants]{.underline}

*XYZ Inc.*

We have audited the accompanying Schedules of Passenger Facility Charges
Collected, Withheld, Refunded/Exchanged, and Remitted by *XYZ Inc.* (the
Company) for the year and each quarter during the year ended December
31, xxxx (the Schedules). The Schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
Schedules based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards and the Federal Aviation Administration Passenger Facility
Charge Audit Guide for Air Carriers. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the Schedules are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the Schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the Schedules. We
believe that our audit provides a reasonable basis for our opinion.

The Schedules were prepared for the purpose of complying with the
regulations issued by the Federal Aviation Administration of the U.S.
Department of Transportation \[14 CFR 158\] to implement 49 U.S.C. 46110
and 40117, as amended. Those regulations define collection as the point
when agents or other intermediaries remit passenger facility charges to
the airlines. Accordingly, our audit did not encompass tests of the
underlying documentation supporting the reports submitted by such
agencies and intermediaries to the Company.

In our opinion, the Schedules referred to above present fairly, in all
material respects, the passenger facility charges collected, withheld,
refunded/exchanged, and remitted by *XYZ Inc.* for the year and each
quarter during the year ended December 31, xxxx, as defined in
regulations issued by the Department of Transportation.

This report is intended solely for the information and use of the Board
of Directors and management of XYZ Airline, Inc., the appropriate
airport authorities, and the Federal Aviation Administration and is not
intended to be and should not be used by anyone other than these
specified parties. However, this restriction is not intended to limit
the distribution of this report, which is a matter of public record.

\[Signature\]

\[Date\]

**Illustrative Report on Internal Control Used in**

**Administering PFC's (Attestation Standards)**

[Report of Independent Accountants]{.underline}

*XYZ Inc.*

We have examined management's assertion included in its representation
letter, dated January 18, xxxx, that *XYZ Inc.* (the Company) maintained
effective internal control over administering passenger facility charges
collected, withheld, refunded/exchanged, and remitted during the year
ended December 31, xxxx, for the purpose of complying with the
regulations issued by the Federal Aviation Administration of the U.S.
Department of Transportation \[14 CFR 158\] to implement 49 U.S.C. 46110
and 40117, as amended, based on criteria established in *Internal
Control - Integrated Framework* issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management is responsible for
maintaining effective internal control over administering passenger
facility charges collected, withheld, refunded/exchanged, and remitted.
Our responsibility is to express an opinion on management's assertion
based on our examination.

Our examination was conducted in accordance with standards established
by the American Institute of Certified Public Accountants and the
Federal Aviation Administration Passenger Facility Charge Audit Guide
for Air Carriers, and, accordingly, included obtaining an understanding
of internal control over administering passenger facility charges
collected, withheld, refunded/exchanged, and remitted, testing, and
evaluating the design and operating effectiveness of internal control,
and performing such other procedures as we considered necessary in the
circumstances. We believe that our examination provides a reasonable
basis for our opinion.

Because of limitations inherent in any internal control, misstatements
due to error or fraud may occur and not be detected. Also, projections
of any evaluation of internal control over administering passenger
facility charges collected, withheld, refunded/exchanged, and remitted
to future periods are subject to the risk that internal control may
become inadequate because of changes in conditions, or that the degree
of compliance with the controls may deteriorate.

In our opinion, XYZ Airline, Inc. maintained, in all material respects,
effective internal control over administering passenger facility charges
collected, withheld, refunded/exchanged, and remitted during the year
ended December 31, xxxx, based on criteria established in *Internal
Control - Integrated Framework* issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

This report is intended solely for the information and use of the Board
of Directors and management of XYZ Airline, Inc., the appropriate
airport authorities, and the Federal Aviation Administration and is not
intended to be and should not be used by anyone other than these
specified parties. However, this restriction is not intended to limit
the distribution of this report, which is a matter of public record.

\[Signature\]

\[Date\]

**APPENDIX B**

*The following illustrative report was reproduced with permission from
the AICPA Statement on Auditing Standards 75 \"Engagements to Apply
Agreed-Upon Procedures to Specific Elements, Accounts, or Items of a
Financial Statement\" and is included here for the convenience of
auditors using this guide. The FAA has reworded the report to reference
the FAA\'s participation in the development of the procedures and to
note that the report is a matter of public record.*

**Illustrative Report**

[Independent Accountant's Report on Applying Agreed-Upon
Procedures]{.underline}

We have performed the procedures enumerated below, which were agreed to
by the Federal Aviation Administration (FAA), \[the carrier\], and the
applicable airport, solely to assist you with respect to your evaluation
of \[the carrier\'s\] compliance with the requirements of 14 Code of
Federal Regulations Part 158, \"Passenger Facility Charges.\" This
engagement to apply agreed-upon procedures was performed in accordance
with standards established by the American Institute of Certified Public
Accountants. The sufficiency of the procedures is solely the
responsibility of the FAA, \[the carrier\], and the applicable airport
of the report. Consequently, we make no representation regarding the
sufficiency of the procedures described below either for the purpose for
which this report has been requested or for any other purpose.

\[Include paragraphs to enumerate procedures and findings.\]

We were not engaged to, and did not, perform an audit, the objective of
which would be the expression of an opinion on the specified elements,
accounts, or items. Accordingly, we do not express such an opinion. Had
we performed additional procedures, other matters might have come to our
attention that would have been reported to you.

This report is intended solely for the information and use of the Board
of Directors and management of XYZ Airline, Inc., the appropriate
airport authorities, and the FAA and should not be used by those who
have not agreed to the procedures and taken responsibility for the
sufficiency of the procedures for their purposes. However, this
restriction is not intended to limit the distribution of this report,
which is a matter of public record.

\[Signature\]

\[Date\]

[^1]: Majors are identified as having \$1 billion in annual operating
    revenue or higher. Nationals are identified as having between \$100
    million to \$1 billion in annual operating revenue.

[^2]: Large Regionals are identified as having between \$20 million and
    \$100 million in annual operating revenue. Medium Regionals are
    identified as having less than \$20 million in annual operating
    revenue.