Audit of Air Carrier Worker Support Certifications - Pegasus Elite Aviation, Inc. (OIG-22-043) (2022-09-28, 2)

Summary

Treasury Office of Inspector General audit report OIG-22-043, dated September 28, 2022, on Pegasus Elite Aviation, Inc.'s certifications for the CARES Act Air Carrier Payroll Support Program (PSP1), transmitted to Treasury Chief Recovery Officer Jacob Leibenluft by Deborah L. Harker, Assistant Inspector General for Audit, and performed under contract by the accounting firm Saggar & Rosenberg, P.C. The auditors found Pegasus incorrectly compiled the data for its awardable amounts for April 1, 2019 through September 30, 2019, including unallowable corporate officer compensation, employer-side payroll taxes and per diem allowances, overstating its request by $981,397. After Treasury's 78.2 percent pro rata distribution, Pegasus received a $767,452 overpayment. The report recommends Treasury seek reimbursement of $767,452 and review Pegasus' PSP2 and PSP3 requests for overpayments.

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Audit Report

OIG-22-043
CORONAVIRUS DISEASE 2019 PANDEMIC RELIEF
PROGRAMS
Audit of Air Carrier Worker Support
Certifications - Pegasus Elite Aviation, Inc.
September 28, 2022
Office of Inspector General
Department of the Treasury

This Page Intentionally Left Blank

September 28, 2022

MEMORANDUM FOR  JACOB LEIBENLUFT

CHIEF RECOVERY OFFICER
FROM:

Deborah L. Harker /s/

Assistant Inspector General for Audit
SUBJECT:
Audit of Air Carrier Worker Support Certifications – Pegasus
Elite Aviation, Inc.
Attached is our audit report for the Audit of Air Carrier Worker Support
Certifications – Pegasus Elite Aviation, Inc. (Pegasus) (OIG-22-043; dated
September 28, 2022). Under a contract monitored by our office, Saggar &
Rosenberg, P.C. (S&R), a certified public accounting firm, performed the audit. The
objective of this audit was to assess the accuracy, completeness, and sufficiency
of Pegasus’ sworn financial statement or other data used to certify the wages,
salaries, benefits, and other compensation amounts submitted and approved by the
Department of the Treasury (Treasury) for the Air Carrier Payroll Support Program
(PSP1). The scope of this audit covered the time period from April 1, 2019 through
September 30, 2019 and included the certified PSP1 Application, sworn financial
statements, tax returns, and other documentation submitted to Treasury.

In its audit report, S&R found Pegasus incorrectly compiled data used for the
Awardable Amounts section of the PSP1 Application, resulting in a $981,397
overstatement. Specifically, the inclusion of:
• Unallowable corporate officer compensation in its PSP1 requested awardable
amount, resulted in a
 overstatement; and

• Unallowable compensation related to employer-side payroll taxes and per
diem allowance in its requested awardable amount, resulted in a

overstatement.

Treasury’s awards to passenger air carriers under PSP1 included a 78.2 percent pro
rata distribution of application amounts. Applying this formula, Pegasus received a
$767,452 overpayment from Treasury.

Accordingly, S&R recommends that Treasury’s Chief Recovery Officer:

• Seek reimbursement of the $767,452 overpayment for PSP1 financial
assistance; and

• Review Pegasus’ requested amount under the Payroll Support Program
Extension (PSP2)1 authorized by the Consolidated Appropriations Act, 2021
and the Payroll Support Program 3 (PSP3)2 authorized by the American
Rescue Plan Act of 2021, and seek reimbursement for overpayment, if
applicable.

Our contract required that the audit be performed in accordance with generally
accepted government auditing standards. In connection with the contract, we
reviewed S&R’s report and related documentation and inquired of its
representatives. Our review, as differentiated from an audit performed in
accordance with generally accepted government auditing standards, was not
intended to enable us to express an opinion on Pegasus’ compliance with
Treasury’s PSP1 policies and procedures. S&R is responsible for the attached
auditor’s report and the conclusions expressed therein. Our review found no
instances in which S&R did not comply, in all material respects, with generally
accepted government auditing standards.
We appreciate the courtesies and cooperation provided to S&R and our staff during
the audit. If you have any questions or require further information, please contact
me at (202) 486-1420, or a member of your staff may contact Lisa DeAngelis,
Deputy Assistant Inspector General for Audit, at (202) 487-8371.

Attachment

cc:
Jason Morrow, Attorney Advisor, Department of the Treasury

Jeff Davis, Partner, Saggar & Rosenberg, P.C.

1  The Consolidated Appropriations Act, 2021 (P.L. 116-260), enacted on December 27, 2020,
created the Airline Worker Support Extension for passenger air carriers and certain contractors.
Treasury referred to this as Payroll Support Program Extension (PSP2).
2  The American Rescue Plan of 2021 (P.L. 117-2), enacted on March 11, 2021, created the Air
Transportation Payroll Support Program Extension authorizing Treasury to provide additional
assistance to passenger air carriers and contractors that received financial assistance under
PSP2. Treasury referred to this as Payroll Support Program 3 (PSP3).

i
Contents
Audit Report
Results in Brief ...................................................................................................2
Background ........................................................................................................4
Audit Results ......................................................................................................8
Finding 1 PSP1 Application Compilation for Salaries and Wages, and Benefits Was
Incorrect .......................................................................................8
Recommendations ........................................................................ 10
Finding 2 Unallowable Costs Were Requested for Other Compensation on the
PSP1 Application .......................................................................... 11
Recommendations ........................................................................ 12
Appendices
Appendix 1: Objective, Scope, and Methodology .................................................. 15
Appendix 2: Schedule of Monetary Benefits ......................................................... 19
Appendix 3: Pegasus Management Response ....................................................... 21
Appendix 4: Treasury Management Response ...................................................... 22
Appendix 5: Report Distribution .......................................................................... 25

Abbreviations
ADP
ADP, LLC
CARES Act
Coronavirus Aid, Relief, and Economic Security Act
COVID-19
Coronavirus Disease 2019
DOT
Department of Transportation
GAO
Government Accountability Office
Guidelines
Guidelines and Application Procedures for Payroll Support to Air
Carriers and Contractors
IRS
Internal Revenue Service
JAMES
Joint Audit Management Enterprise System
OIG
Treasury Office of Inspector General
Pegasus
Pegasus Elite Aviation, Inc.
PSP1
Payroll Support Program, CARES Act

ii

PSP2
Payroll Support Program Extension, Consolidated Appropriations
Act, 2021
PSP3
Payroll Support Program 3, American Rescue Plan Act of 2021
S&R
Saggar & Rosenberg, P.C.
SOC 1
System and Organizational Controls
Treasury
Department of the Treasury

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Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
1

September 28, 2022
Jacob Leibenluft
Chief Recovery Officer
Department of the Treasury
This report presents the results of our audit of Pegasus Elite
Aviation, Inc. (Pegasus) certifications made to the Department of
the Treasury (Treasury) as part of its participation in the Air Carrier
Payroll Support Program (PSP1). This audit was mandated by Title
IV, Subtitle B, Air Carrier Worker Support, of the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act).3 Under the CARES
Act, Treasury was to provide $32 billion in financial assistance to
passenger air carriers, cargo air carriers, and certain contractors to
be exclusively used for the continuation of payment of employee
wages, salaries, and benefits, in response to the economic impact
of the Coronavirus Disease 2019 (COVID-19).4 Furthermore, the
Treasury Office of Inspector General (OIG) is required to audit
certifications made by passenger and cargo air carriers that do not
report salaries and benefits to the Department of Transportation
(DOT) (hereinafter referred to as non-241 air carriers)5 and
contractors.
Under a contract with Treasury OIG, Saggar & Rosenberg,
P.C. (S&R) conducted this audit. Our audit objective was to assess
the accuracy, completeness, and sufficiency of Pegasus’ sworn
financial statement or other data used to certify the wages,
salaries, benefits, and other compensation amounts submitted and
approved by Treasury for PSP1. The scope of our audit covered the
time period from April 1, 2019 through September 30, 2019 and
included the certified PSP1 Application, sworn financial
statements, tax returns, and other documentation submitted to
Treasury on April 3, 2020.6

3  P.L. 116-136 (March 27, 2020).
4  The financial assistance provided under the CARES Act was split between Passenger Air Carriers
($25 billion), Cargo Air Carriers ($4 billion), and Contractors ($3 billion).
5  Passenger and cargo air carriers that are not required to report salaries and wages to DOT under
14 CFR, Part 241, “Uniform System of Accounts and Reports for Large Certificated Air Carriers”.
6  Pegasus submitted the PSP1 Application and related support documentation on April 3, 2020.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
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To accomplish the objective, we reviewed applicable laws and
regulations; and Treasury’s policies and procedures, including but
not limited to, the Title IV, Subtitle B, Air Carrier Worker Support of
the CARES Act, Guidelines and Application Procedures for Payroll
Support to Air Carriers and Contractors (Guidelines), PSP1
Agreement, and Frequently Asked Questions: Application
Procedures for Payroll Support to Air Carriers and Contractors. We
interviewed key personnel from Pegasus, Treasury, and contracted
consultants7 engaged by Treasury to evaluate certified company
applications. We conducted our fieldwork from September 2021
through January 2022. Appendix 1 contains a more detailed
description of our objective, scope, and methodology.
Results in Brief
In brief, S&R found that Pegasus, a passenger air carrier, reported
correct information for three of the four sections reviewed on their
PSP1 Application.8 These sections are: (1) Applicant Information,
(2) Applicant Type, and (3) Certification. However, we determined
that Pegasus incorrectly reported information in the Awardable
Amounts section, resulting in a $981,397 overstatement in its
awardable amount request. Specifically, we found that
(1) averaging company employee salary, wage, and benefits
compensation, which also included unallowable compensation paid
to corporate officers, resulted in a
 overstatement and
(2) the inclusion of unallowable compensation related to employer-
side payroll taxes and per diem allowances resulted in an
overstatement of
. Treasury’s awards to passenger air
carriers under PSP1 included a 78.2 percent pro rata distribution of
application amounts. Applying this formula, we found that Pegasus
received a $767,452 overpayment from Treasury. As a result, we
question costs totaling $767,452 and recommend that the Chief
Recovery Officer seek reimbursement of the $767,452
overpayment to Pegasus for PSP1. Additionally, we recommend
that Treasury review Pegasus’ requested amount under the Payroll

7  Summit Consulting, LLC.
8  The PSP1 Application is comprised of eight sections. Four sections - Financial Institution Information,
Employment Levels, Taxpayer Protection, and Additional Information, were not subject to audit
procedures. Details regarding the sections not reviewed can be found in appendix 1.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Support Program Extension (PSP2)9 authorized by the Consolidated
Appropriations Act, 2021 and the Payroll Support Program 3
(PSP3)10 authorized by the American Rescue Plan Act of 2021, and
seek reimbursement for overpayment, if applicable.
Appendix 2 contains more details on questioned costs.
As part of our reporting process, we provided Pegasus
management an opportunity to comment on a draft of this report.
In a written response, Pegasus management stated that because of
receiving the PSP1 financial assistance, the company did not have
to lay off a single employee during the pandemic. Management
noted that the individual who prepared the application is no longer
with the company and at the time, it had no reason to doubt that
the PSP1 Application submitted to Treasury was accurate.
Management also stated that it will cooperate with all
correspondence in the future. Pegasus management’s response, in
its entirety, is included as appendix 3 of this report.
In a written response, Treasury management concurred with our
recommendations and agreed that any overpayments of PSP funds
should be recouped. Treasury stated it will conduct a review of the
findings, consider any response from the recipient, and seek
recoupment of any amounts that Treasury determines have been
overpaid. Also, Treasury will review awardable amounts requested
under PSP2 and PSP3 and seek recoupment where appropriate.
Treasury management will need to record an estimated completion
date for these actions in the Joint Audit Management Enterprise
System (JAMES). Management’s planned corrective actions meet
the intent of our recommendations. Treasury management’s
response, in its entirety, is included as appendix 4 of this report.

9  The Consolidated Appropriations Act, 2021 (P.L. 116-260), enacted on December 27, 2020, created
the Airline Worker Support Extension for passenger air carriers and certain contractors. Treasury
referred to this as Payroll Support Program Extension (PSP2).
10  The American Rescue Plan of 2021 (P.L. 117-2), enacted on March 11, 2021, created the Air
Transportation Payroll Support Program Extension authorizing Treasury to provide additional
assistance to passenger air carriers and contractors that received financial assistance under PSP2.
Treasury referred to this as Payroll Support Program 3 (PSP3).

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
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Background
Title IV, Subtitle B, of the CARES Act, Air Carrier Worker Support,
requires Treasury to provide financial assistance to air carriers and
contractors that must exclusively be used for the continuation of
payments of employees’ wages, salaries, and benefits. Financial
assistance is to be provided to:
(1) passenger air carriers, in an aggregate amount up to

$25 billion;
(2) cargo air carriers, in an aggregate amount up to $4 billion; and
(3) contractors, in an aggregate amount up to $3 billion.

According to the CARES Act, Treasury is required to provide
financial assistance to air carriers that report salaries and benefits
to the DOT (referred to as 241 carriers),11 in an amount equal to
the salaries and benefits reported to DOT for the period
April 1, 2019 through September 30, 2019. For air carriers that do
not report such data to DOT (referred to as non-241 carriers), and
contractors financial assistance is required to be in an amount that
the air carrier or contractor certifies using sworn financial
statements or other appropriate data as the amount of wages,
salaries, benefits, and other compensation paid to employees
during the period of April 1, 2019 through September 30, 2019.
The amounts submitted on the application to Treasury were
considered sworn financial statements. To be eligible for payments,
air carriers and contractors had to enter into agreements with
Treasury certifying that they meet certain required assurances,
terms, and conditions.
On March 30, 2020, Treasury posted on its website the
Guidelines, which included the PSP1 Application. The PSP1
Application is comprised of eight sections:

11  14 CFR, Part 241 “Uniform System of Accounts and Reports for Large Certificated Air Carriers”
defines “Air carrier, large certificated” as an air carrier holding a certificate issued under 49 U.S.C
41102, as amended, that: (1) operates aircraft designed to have a maximum passenger capacity of
more than 18,000 pounds; or (2) conducts operations where one or both terminals of a flight stage
are outside the 50 states of the United  States, the District of Columbia, the Commonwealth of
Puerto Rico, and the U.S. Virgin Islands. These air carriers are required to report financial information
to DOT. Pegasus is not a Large Certificated Air Carrier.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
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1. Application Information ─ (1) applicant name; (2) taxpayer
identification number and address; and (3) contact person’s
name, title, phone number, and email address.

2. Applicant Type ─ selection of applicant type whether its
passenger air carrier, cargo air carrier, or contractor.
Additionally, if the applicant is a contractor, this section would
identify the contractor’s service functions and the name of the
air carrier or airport to which services are provided. Finally, this
section includes affiliate and parent company information.

3. Financial Institution Information ─ (1) the applicant’s banking
account number and routing number; and (2) the financial
institution’s name, address, and telephone number.

4. Employment Levels ─ applicant’s average number of employees
for 2019 and involuntary reductions after March 1, 2020.

5. Awardable Amounts ─ applicant’s sworn financial statement
consisting of salaries, wages, benefits, and other compensation
for the period April 1, 2019 through September 30, 2019.

6. Taxpayer Protection ─ a table that outlines in detail the
proposed financial instrument to be issued to the Treasury.

7. Additional Information ─ applicant’s verification of submitting its
Internal Revenue Service (IRS) Form 941– Employer’s Quarterly
Federal Tax Return12 covering the period April 1, 2019 through
September 30, 2019 along with the PSP1 Application submitted
to Treasury.

8. Certification ─ names, titles, and signatures of two certifying
officials13 and the applicant name and application submission
date.

On April 18, 2020, Treasury published a sample PSP1 Agreement
on its website, which provided definitions, terms, and conditions

12  IRS Form 941 is a tax form that businesses file quarterly to report income taxes, Social Security
taxes, and Medicare taxes they withheld from employee paychecks.
13  The certifying officials attested under penalty of perjury that the information and certifications
provided in the application and its attachments are true and correct.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
6
for participation in PSP1, and required applicants to submit
completed applications by April 27, 2020. After Treasury reviewed
and approved an application, both parties were required to sign the
PSP1 Agreement.
Treasury Disbursement Processes
In an effort to disburse PSP1 payments to passenger air carrier
applicants as quickly as possible and prior to the application
deadline of April 27, 2020, Treasury applied an initial estimated pro
rata rate of 76 percent to the awardable amount because not all
applications had been submitted at the time. After the application
deadline, Treasury determined the total amount requested by all
passenger air carrier applicants was approximately $31.8 billion,
which exceeded the $25 billion available financial assistance.
Because its initial estimated pro rata rate was too low, Treasury
calculated an additional 2.2 percent, the top-off amount, for
passenger air carriers making the final awarded pro rata rate
78.2 percent. Generally, Treasury disbursed an initial lump sum
payment of one-third of the awardable amount, followed by four
equal subsequent payments to ensure it provided sufficient and
timely financial assistance corresponding to the applicants’ payroll
schedule. In instances where Treasury needed to perform additional
follow-up with passenger air carriers or needed additional time to
approve applications, Treasury compressed the payment schedule
on a case-by-case basis. Generally, Treasury disbursed the top-off
amounts for passenger air carriers in September 2020; however,
Pegasus received their top-off amount in March 2021. Treasury
officials told us that if recoupment was necessary for an
applicant’s inclusion of unallowable expenses such as corporate
officer compensation and employer-side payroll taxes in the
application, the recoupment method was dependent on timing. If
the need for recoupment was known prior to the top-off
distribution then the recoupment was offset from the top-off
payment. For recoupment amounts not known until after the top-
off payment, Treasury has not made a decision how those funds

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
7
will be collected and whether those funds will be reallocated at a
later date.
PSP1 Interim Audit Report
In a prior audit report14, OIG identified two recurring issues
affecting the payment amounts administered to all PSP1 recipients
for non-241 air carriers and contractors. Specifically, employer-side
payroll taxes and corporate officer compensation were included in
the awardable amounts for some recipients. Treasury management
acknowledged that the recipients audited included unallowable
employer-side payroll taxes or corporate officer compensation in
their calculation of the awardable amount on their PSP1
Applications and agreed to (1) review payments issued under PSP1
to ensure awarded amounts are allowable per the CARES Act and
Treasury guidance; and (2) remedy the incorrect amounts awarded
under PSP1.
Pegasus Elite Aviation, Inc.
Headquartered in Van Nuys, California, Pegasus specializes in
private jet charter, in-house aircraft management, maintenance and
aircraft acquisition and sales for both personal and business needs.
Pegasus, a non-241 passenger air carrier, submitted its PSP1
Application totaling
 on April 3, 2020. Pegasus
received the passenger air carrier top-off for a total award of
$3,752,680, or 78.2 percent of the company’s requested amount.
Treasury’s disbursements to Pegasus were as follows:
• April 27, 2020 - $1,215,702.08
• June 2, 2020 - $607,851.04
• July 1, 2020 - $607,851.04
• August 3, 2020 - $607,851.04
• September 1, 2020 - $607,851.04

14  OIG-21-025, Interim Audit Update – Air Carrier and Contractor Certifications for Payroll Support
Program (Interim Audit), March 31, 2021.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
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• March 9, 2021 - $105,574.13
In addition to PSP1, Treasury awarded Pegasus $2,538,578 under
PSP2 and $2,367,732 under PSP3. PSP2 and PSP3 were not the
subject of this audit.
Audit Results
We found that Pegasus reported correct information for three of
the four sections reviewed on their PSP1 Application. These
sections are: (1) Applicant Information, (2) Applicant Type, and
(3) Certification. We compared information provided in each section
of the PSP1 Application to supporting documentation including
general ledger data, IRS Form 941, executive-level business charts,
payroll registers, and third-party benefit invoices. However, we
found that Pegasus reported incorrect information in the Awardable
Amounts section of the PSP1 Application.
Finding 1
PSP1 Application Compilation for Salaries and Wages,
and Benefits Was Incorrect

We found that Pegasus prepared the awardable amount table on
the PSP1 Application for “Salaries and Wages” and “Benefits”
using calendar year 2019 monthly compensation averages for
individuals employed by the company as of January 1, 2020,
which totaled
, as opposed to actual salary, wage, and
benefit costs incurred between April 1, 2019 and
September 30, 2019, which totaled
. The monthly
averages used included
 of employee-paid benefit
premiums, as well as unallowable compensation paid to Pegasus’
three corporate officers: the Chief Executive Officer, Vice
President, and Executive Vice President of Operations. Pegasus
paid salaries and benefits totaling
 on behalf of these
corporate officers from April through September 2019, reducing
the allowable amount of salary, wage and benefit compensation on
the PSP1 Application to
. Table 1 illustrates a monthly
breakdown of Pegasus’ overstated amounts.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Table 1: Awardable Amount Comparison for Salaries, Wages and
Benefits

Month
PSP1
Application
Allowable PSP1
Compensation

Variance
April 2019

May 2019

June 2019

July 2019

August 2019

September
2019

TOTAL

Source: S&R Calculation of Awardable Amount
Treasury’s Guidelines defines wages, salaries, benefits, and other
compensation as “remuneration paid by the applicant to its
employees for personal services and includes salaries, wages,
overtime pay, cost-of-living differentials, and other similar
compensation, as distinguished from per diem allowances or
reimbursement for expenses incurred by personnel for the benefit
of the applicant.” The Guidelines goes on to state that “Under
Section 4113(a) of the Act, payroll support will be awardable to an
approved applicant in an amount equal to the compensation paid by
the applicant to its employees, as determined by the Secretary of
the Treasury in his sole discretion, for the period from
April 1, 2019 through September 30, 2019 (Awardable Amount).”
In addition, both the CARES Act and Treasury’s Guidelines define
“employee” as “an individual, other than a corporate officer, who is
employed by an air carrier or contractor in the United States
(including its territories and possessions).” In addition, the
PSP1 Agreement, effective date April 24, 2020, subsequently
defines a corporate officer as, with respect to the Recipient, “its
president; any vice president in charge of a principal business unit,
division, or function (such as sales, administration or finance); any
other officer who performs a policy-making function; or any other
person who performs similar policy making functions for the
Recipient. Executive officers of subsidiaries or parents of the

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
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Recipient may be deemed Corporate Officers of the Recipient if
they perform such policy-making functions for the Recipient.”
Pegasus management stated that the company compiled the PSP1
Application on short notice relative to the application deadline,
which resulted in the company making several assumptions, such
as averaging 2019 monthly payroll and benefits for all company
employees as opposed to calculating actual salary, wage, and
benefit costs for allowable employees.
Since Treasury disbursed PSP1 funds pro rata for passenger air
carriers at 78.2 percent of the requested awardable amount, the
overstated awardable amount of
 resulted in Pegasus
receiving an overpayment of $299,965.
Recommendations
S&R recommends that the Chief Recovery Officer:
1. Seek reimbursement of the $299,965 overpayment related to
averaging salary, wage, and benefit costs, which is inclusive of
corporate officer compensation.

Management Response
Treasury will conduct a review of the findings, consider any
response from the recipient, and seek recoupment of any
amounts that Treasury determines have been overpaid.
S&R Comment
Management’s planned corrective actions meet the intent of our
recommendation. Treasury management will need to record an
estimated completion date for these actions in JAMES.
2. Review Pegasus’ PSP2 and PSP3 certifications to determine if
corporate officer compensation was requested and seek
reimbursement for the overpayment, if applicable.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
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Management Response
Treasury will review awardable amounts requested under PSP2
and PSP3 and seek recoupment where appropriate.
S&R Comment
Management’s planned corrective actions meet the intent of our
recommendation. Treasury management will need to record an
estimated completion date for these actions in JAMES.
Finding 2
Unallowable Costs Were Requested for Other
Compensation on the PSP1 Application

Treasury’s Guidelines defines wages, salaries, benefits, and other
compensation as “remuneration paid by the applicant to its
employees for personal services and includes salaries, wages,
overtime pay, cost-of-living differentials, and other similar
compensation, as distinguished from per diem allowances or
reimbursement for expenses incurred by personnel for the benefit
of the applicant.” Further, the PSP1 Agreement subsequently
defines Salary as “without duplication of any amounts counted as
Benefits, a predetermined regular payment, typically paid on a
weekly or less frequent basis but which may be expressed as an
hourly, weekly, annual or other rate, as well as cost-of-living
differentials, vacation time, paid time off, sick leave, and overtime
pay, paid by the Recipient to its Employees, but excluding any
Federal, state, or local payroll taxes paid by the Recipient.”
Pegasus requested unallowable compensation for employer-side
payroll taxes, totaling
, and per diem allowances, totaling
, as part of “Other Compensation” financial assistance on
the PSP1 Application, as illustrated in Table 2 Below.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
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Table 2. Unallowable Other Compensation
Month
Employer-Side
Payroll Taxes
Per Diem
Allowances
Total
April 2019

May 2019

June 2019

July 2019

August 2019

September 2019

Total

Source: S&R Calculation of Awardable Amount
Pegasus management stated that the employer-side payroll tax
restriction was not included on the PSP1 Application guidelines, so
they were unaware of the allowability when preparing the PSP1
Application. Management also stated that the inclusion of per diem
allowances was unintentional and an oversight during the
compilation process.
Since Treasury disbursed PSP1 funds pro rata for passenger air
carriers at 78.2 percent of the requested awardable amount, the
overstated awardable amount of
 resulted in Pegasus
receiving an overpayment of $467,487.
To remedy the findings listed in the prior OIG audit report,15
Treasury required PSP2 applicants to re-certify their PSP1
awardable amounts. Pegasus certified to Treasury under PSP2, that
its PSP1 Application did not include corporate officer
compensation. As a result, the company likely included corporate
officer compensation in its PSP2 and PSP3 financial assistance
request.
Recommendations
S&R recommends that the Chief Recovery Officer:

15  OIG-21-025, Interim Audit Update – Air Carrier and Contractor Certifications for Payroll Support
Program (Interim Audit), March 31, 2021.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
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3. Seek reimbursement of the $467,487 overpayment related to
the inclusion of employer-side payroll taxes and per diem
allowances on the PSP1 Application.

Management Response
Treasury will conduct a review of the findings, consider any
response from the recipient, and seek recoupment of any
amounts that Treasury determines have been overpaid.
S&R Comment
Management’s planned corrective actions meet the intent of our
recommendation. Treasury management will need to record an
estimated completion date for these actions in JAMES.
4. Review Pegasus’ PSP2 and PSP3 certifications to determine if
employer-side payroll tax was requested and seek
reimbursement for the overpayment, if applicable.
Management Response
Treasury will review awardable amounts requested under PSP2
and PSP3 and seek recoupment where appropriate.
S&R Comment
Management’s planned corrective actions meet the intent of our
recommendation. Treasury management will need to record an
estimated completion date for these actions in JAMES.
5. Review Pegasus’ PSP2 and PSP3 certifications to determine if
per diem allowances were requested and seek reimbursement
for the overpayment, if applicable.
Management Response
Treasury will review awardable amounts requested under PSP2
and PSP3 and seek recoupment where appropriate.
S&R Comment
Management’s planned corrective actions meet the intent of our
recommendation. Treasury management will need to record an
estimated completion date for these actions in JAMES.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
14

Appendices
* * * * * *
We appreciate the courtesies and cooperation provided to our staff
during the audit. A distribution list for this report is provided as
appendix 5.
Saggar & Rosenberg, P.C. /s/

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Appendix 1: Objective, Scope, and Methodology
Our objective was to assess the accuracy, completeness, and
sufficiency of Pegasus Elite Aviation, Inc.’s (Pegasus) sworn
financial statement or other data used to certify the wages,
salaries, benefits, and other compensation amounts submitted and
approved by the Department of the Treasury (Treasury).
The scope of our audit covered the time period from April 1, 2019
through September 30, 2019 and included the certified Payroll
Support Program (PSP1) Application, sworn financial statements,
tax returns, and other documentation submitted to Treasury on
April 3, 2020.16
To accomplish this objective, Saggar & Rosenberg, P.C. (S&R)
performed the following activities during audit fieldwork conducted
remotely, due to the Coronavirus Disease 2019 (COVID- 19)
pandemic from September 2021 through January 2022:
•
Reviewed applicable Federal laws, regulations, and guidance,
including:
o Title IV, Subtitle B, Air Carrier Worker Support, of the
Coronavirus Aid, Relief, and Economic Security Act
(CARES Act);17 and
o 14 CFR, Part 241,18 Uniform System of Accounts and
Reports for Large Certificated Air Carriers, amended
August 12, 2022.
•
Reviewed Treasury’s policies, procedures, and guidance related

16  Pegasus Elite Aviation, Inc. submitted the PSP1 Application and related support documentation on
April 3, 2020.
17  P.L. 116-136 (March 27, 2020).
18  14 CFR, Part 241 “Uniform System of Accounts and Reports for Large Certificated Air Carriers”
defines “Air carrier, large certificated” as an air carrier holding a certificate issued under 49 U.S.C
41102, as amended, that: (1) operates aircraft designed to have a maximum passenger capacity of
more than 18,000 pounds; or (2) conducts operations where one or both terminals of a flight stage
are outside the 50 states of the United  States, the District of Columbia, the Commonwealth of
Puerto Rico, and the U.S. Virgin Islands. These air carriers are required to report financial information
to DOT. Pegasus is not a Large Certificated Air Carrier.

Appendix 1: Objective, Scope, and Methodology
Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
16
to PSP1:
o Guidelines and Application Procedures for Payroll Support
to Air Carriers and Contractors (Guidelines), which
included the PSP1 Application, March 30, 2020;
o PSP1 Agreement;
o Question and Answer: Payroll Support to Air Carriers and
Contractors, (April 2, 2020, April 3, 2020, and April 20,
2020 versions); and
o Frequently Asked Questions: Application Procedures for
Payroll Support to Air Carriers and Contractors,
April 3, 2020.
•
Performed 100 percent testing for four of the eight sections of
the PSP1 Application, specifically, the Applicant Information,
Applicant Type, Awardable Amounts, and Certification sections.
The other four sections were not reviewed because the
Taxpayer Protection section generally applied to 241 air
carriers, with exceptions; the Employment Levels, Financial
Institution Information, and Additional Information sections had
no impact on Treasury’s determination of recipients’ award
amounts.
•
Interviewed key Treasury personnel and contracted
consultants19 engaged by Treasury to aid in its evaluation of the
air carriers’ and the contractors’ certified applications and other
data.
•
Interviewed Pegasus representatives responsible for the
completion and submission of the sworn financial statements.
The amounts submitted in the Awardable Amounts section of
the PSP1 Application were considered sworn financial
statements.
•
Reviewed sworn financial statements and documents to support
the requested payroll support amount. The documentation
included, but was not limited to, general ledger data, company
pay registers, benefit invoices, Internal Revenue Service (IRS)
Form 941 – Employer’s Quarterly Federal Tax Return,20 filings,

19  Summit Consulting, LLC.
20  IRS Form 941 is a tax form that businesses file quarterly to report income taxes, Social Security
taxes, and Medicare taxes they withheld from employee paychecks.

Appendix 1: Objective, Scope, and Methodology
Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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2019 IRS Form 851 - Affiliation Schedule,21 and organizational
hierarchy information.
•
Reviewed Government Accountability Office’s (GAO) Standards
for Internal Control in the Federal Government22 to identify the
components of internal control that are significant to the audit
objective. Understanding internal control within the context of
an entity’s internal control framework can help auditors
determine whether internal control deficiencies exist. We
concluded that one of the five internal control components,
Control Activities, as related to Pegasus’ payroll systems, was
significant to the audit objective.23 This component states that
control activities are the actions management establishes
through policies and procedures to achieve objectives and
respond to risks in the internal control system, which includes
the entity’s information system. To assess the controls over
Pegasus’ payroll systems, we examined Pegasus’ response to
Data Supplier Questionnaires,24 reviewed a System and
Organizational Controls 1 (SOC 1),25 and interviewed Pegasus’
management responsible for generating and using the data.
Additional details regarding our assessment of the reliability of
the data is reported in the section below.
•
Reviewed GAO’s Assessing Data Reliability26 guidance, which
states that a data reliability determination does not involve
attesting to the overall reliability of the data or database. For
this audit, the audit team has only determined the reliability of
the specific data sources needed to support the findings,
conclusions, or recommendations in the context of the audit
objective. Pegasus prepared the PSP1 Application using annual

21 IRS Form 851 is a tax form that a parent corporation of an affiliated group files with its consolidated
income tax return to (1) identify the common parent corporation and each member of the affiliated
group; (2) report the amount of overpayment credits, estimated tax payments, and tax deposits
attributable to each corporation; and (3) determine that each subsidiary corporation qualifies as a
member of the affiliated group.
22  GAO-14-704G (September 2014).
23 The five components in GAO’s Standards for Internal Control in the Federal Government are Control
Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring.
24  A Data Reliability Assessment is completed to assess the reliability of data originating from a system
to determine if it is reliable for the purposes of the audit. The Data Supplier Questionnaire would be
one of the tools used during the Data Reliability Assessment.
25  SOC 1 reports address a company’s internal control over financial reporting, which pertains to the
application of checks-and-limits. Essentially, it is the audit of a third-party vendor’s accounting and
financial controls.
26  GAO-20-283G (December 2019).

Appendix 1: Objective, Scope, and Methodology
Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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payroll averages from the company payroll system, ADP, LLC
(ADP), as well as annual benefit averages from the system of
record, QuickBooks. We compared payroll details generated
from ADP Payroll registers at the individual employee level, as
well as third-party vendor benefit invoices from April through
September 2019 to the amounts presented in the Awardable
Amounts section of the PSP1 Application.
To assess data reliability of these sources, we examined
Pegasus’ response to Data Supplier Questionnaires for
QuickBooks and ADP, reviewed the ADP SOC1, and interviewed
Pegasus’ management responsible for generating and using the
data. Based on our assessment, we determined that the data
was sufficiently reliable to support the findings and conclusions
to answer the objective of this audit.
We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require
that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and
conclusions based on our audit objective. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objective.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Appendix 2: Schedule of Monetary Benefits
According to the Code of Federal Regulations,27 a questioned cost
is a cost that is questioned by the auditor because of an audit
finding:

(a) which resulted from a violation or possible violation of a
statute, regulation, or the terms and conditions of a Federal
award, including for funds used to match Federal funds;

(b) where the costs, at the time of the audit, are not supported
by adequate documentation; or

(c) where the costs incurred appear unreasonable and do not
reflect the actions a prudent person would take in the
circumstances.

Questioned costs are to be recorded in the Department of the
Treasury’s (Treasury) Joint Audit Management Enterprise System
(JAMES). The amount will also be included in the Office of
Inspector General (OIG) Semiannual Report to Congress. It is
Treasury management's responsibility to report to Congress on the
status of the agreed to recommendations with monetary benefits in
accordance with Section 5(b) of the Inspector General Act of
1978, as amended.

Recommendation

Questioned Costs
Recommendation No. 1

$299,965
Recommendation No. 3

$467,487

The questioned costs represent amounts provided by Treasury
under the Payroll Support Program (PSP1). As discussed in Finding
1, Pegasus Elite Aviation, Inc. overstated its PSP1 Application
awardable amount to Treasury by
 due to averaging
company employee salary, wage, and benefits compensation,
which also included unallowable compensation paid to corporate
officers. In addition, as discussed in Finding 2, Pegasus Elite
Aviation, Inc. overstated its PSP1 Application awardable amount to
Treasury by
 due to the inclusion of unallowable
compensation related to employer-side payroll taxes and per diem

27  2 CFR § 200.84 – Questioned Cost.

Appendix 2: Schedule of Monetary Benefits
Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
20
allowances in the awardable amount, resulting in an aggregate
overstatement of $981,397 for Finding 1 and Finding 2. However,
since Treasury disbursed PSP1 funds pro rata for passenger air
carriers at 78.2 percent of the requested awardable amount, the
questioned costs related to the overstated PSP1 Application are
$299,965 and $467,487, respectively.

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Appendix 3: Pegasus Management Response

Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Appendix 4: Treasury Management Response

Appendix 4: Treasury Management Response
Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Appendix 4: Treasury Management Response
Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Audit of Air Carrier Worker Support Certifications - Pegasus Elite
Aviation, Inc. (OIG-22-043)
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Appendix 5: Report Distribution
Department of the Treasury
Treasury Secretary
Deputy Secretary
Treasury Audit Liaison
Office of Strategic Planning and Performance Improvement
Office of the Deputy Chief Financial Officer, Risk and Control
Group
Pegasus Elite Aviation, Inc.
President
Office of Management and Budget
OIG Budget Examiner

United States Senate
Committee on Homeland Security and Governmental Affairs
Committee on Finance
Committee on Banking, Housing, and Urban Affairs
Committee on Commerce, Science, and Transportation
Committee on Appropriations
Committee on the Budget
United States House of Representatives
Committee on Oversight and Reform
Committee on Financial Services
Committee on the Budget
Committee on Transportation and Infrastructure

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