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Internal Audit Briefing Presented to the Port of Seattle Audit Committee and Tay Yoshitani, CEO Joyce Kirangi, CPA, CGMA Director, Internal Audit June 11, 2013 Agenda Audit Report 1. Lease and Concession Audits Hertz Rent-A-Car 2. Operational Audits Central Processing System None Comprehensive Operational Audit /Departmental Audit Airport Transit Operations/ Rental Car Facility Fishermen's Terminal Limited Operational Audit Code of Conduct Debt Service Ports Jobs Contract Small Contractor and Supplier Program (SCS) 3rd Party Audit None Briefing/Updates None Lease and Concession Audit Hertz Rent-A-Car Background Hertz is one of two brands offering rental cars, trucks, and equipment within the Hertz Corporation, a subsidiary of Hertz Global Holdings, Inc. Hertz operates five locations under the agreement at and in the vicinity of the airport. Under the terms of the agreement, Hertz agreed to pay either a Minimum Annual Guarantee (MAG) or percentage fees of 10% on their gross receipts, whichever is higher. Fiscal Year Reported Gross Revenue Paid Concession 2009 - 2010 55,919,197 5,591,920 2010 - 2011 54,769,892 5,476,889 Grand Total $ 110,689,089 $ 11,068,809 Data Source: Hertz Rent-A-Car Annual Report and PeopleSoft General Ledger Lease and Concession Audit Hertz Rent-A-Car Audit Objectives The purpose of the audit was to determine whether: 1. The reported concession fees were complete, properly calculated, and remitted timely to the Port. 2. The Port and the lessee complied with provisions of the Lease and Concession Agreement, as amended. 3. Customer Facility Charges (CFC) were properly collected and remitted timely to the Port. The scope of our audit covered a two-year period from November 1, 2009 through October 31, 2011. Lease and Concession Audit Hertz Rent-A-Car Audit Result Hertz materially complied with the terms of the Rental Car Lease and Concession agreement. However, the audit determined that certain gross receipts were underreported. One Finding One concession location was not reported, resulting in $7,720 in additional concession to the Port. Certain concession items were not included, resulting in $13,298 in additional concession to the Port. For a total of $21,018 ( $7,720+$13,298) Comprehensive Operational Audit Airport Transit Operations Rental Car Facility Background The newly-constructed Rental Car Facility (RCF) opened in May 2012; however, Airport Transit Operations (ATO) initiated activation in January 2012. The RCF houses 13 rental car companies. The ATO operates a 24/7 shuttle service for arriving and departing passengers who plan to rent and drop off a vehicle, which is estimated to be 4.5 million passengers annually. The program owns 29 Gillig buses and employs 72 staff. Description 2012 2013* Salaries, Wages, & Benefits 3,284,400 1,022,567 Equipment Expenses 29,997 10,966 Supplies/Stock 71,216 5,904 Outside Services 280,196 21,890 Travel & Other Expenses 15,922 - Telecommunication 4,710 617 General Expenses 6,213 (230) Grand Total 3,692,654 1,061,713* Note: *Expenses as of March 31, 2013 Comprehensive Operational Audit Airport Transit Operations Rental Car Facility Audit Objectives The purpose of the audit was to determine whether Port management is effectively and efficiently monitoring : 1. Payroll 2. Operating Expenses 3. Safety Training The scope of our audit covered the period from inception in January 2012 through March 31, 2013. Comprehensive Operational Audit Airport Transit Operations Rental Car Facility Audit Result Port management is effectively monitoring Airport Transit Operations related to payroll, expenses, and safety training. No Findings Comprehensive Operational Audit Fishermen's Terminal Background Located on Seattle's Ship Canal, which links Lake Washington to the Puget Sound, Fishermen's Terminal has been the traditional home port for the North Pacific Fishing Fleet for almost 100 years. Fishermen's Terminal provides freshwater moorage and other services (e.g., power and water) for a variety of boats and ships. 2010 2011 2012 Revenue $2,740 $2,544 $2,538 Berthage & Moorage $1,752 $1,554 $1,542 Lockers $587 $587 $593 Other Revenue $401 $403 $403 Expenses $1,731 $1,573 $1,621 Salaries & Benefits $999 $897 $958 Utilities $488 $488 $497 Other Expenses $244 $188 $166 Less: Depreciation 1,858 1,936 1,601 Net Income/(Loss) ($849) ($965) ($683) Comprehensive Operational Audit Fishermen's Terminal Audit Objectives The purpose of the audit was to determine whether: Department controls are adequate to provide reasonable assurance that moorage revenue is accurate and complete in compliance with Department policies and procedures, including the Port-wide moorage tariff. The Department has implemented sufficient corrective action to address issues identified in prior audits. The scope of our audit covered the period from January 1, 2011, through April 30, 2013. Comprehensive Operational Audit Fishermen's Terminal Audit Result The Department's controls are adequate to provide reasonable assurance that moorage revenue is accurate and complete in compliance with Department policies and procedures. Management has implemented sufficient corrective action to address issues identified in prior audits. No Findings Limited Operational Audit Code of Conduct Background In 2010, Senior Port leaders led the development of the Port's Code of Conduct Handbook , which is composed of Policies CC-1, through CC-14. All new employees are asked to certify that they have read and are familiar with the Handbook within a short time after their hire date. The Port created Workplace Responsibility, to provide overall leadership and coordination of the Port's ethics and compliance program, and hired its first Workplace Responsibility Officer (WRO) in February 2010. The WRO guides, supports, and reinforces the Port of Seattle's efforts to advance the Port's mission, while upholding the highest standards of business ethics and workplace behavior. Limited Operational Audit Code of Conduct Audit Objectives The purpose of the audit was to : 1. Determine whether management controls are adequate to ensure: Awareness/visibility of Helpline/Hotline. Training in Code of Conduct is provided timely to all new employees. Training is reinforced with employees and management. Code of Conduct policies are enforced Port wide. Investigations are conducted timely and properly. Access to the SharePoint site that houses reports (WRITS) is controlled. Audit Objectives continued next page Limited Operational Audit Code of Conduct Information in WRITS is maintained confidential. Management reporting is timely and accurate. State Auditor's reports, in accordance with RCW 43.09.185, under the purview of the Workplace Responsibility Officer, are complete, timely, and accurate. 2. Develop maturity models for: Training. Investigation. 3. Benchmark organizational structure against similar entities. The scope of our audit covered the period from April 1, 2010, through March 18, 2013. Limited Operational Audit Code of Conduct Audit Result Given the relative youth of this program, it is operating at a reasonable level of maturity, and management controls are adequate. Organizational placement of Workplace Responsibility is comparable to the majority of similar entities. No Findings Limited Operational Audit Debt Service Background The Port, under the authority of RCW 53.40 and RCW 53.44, issues municipal bonds (short- and long-term obligations) to invest in necessary Port's operations including long-term infrastructure projects. These obligations contribute towards Port's initiatives to promote economic vitality, to maintain optimum operations' at the Port facilities, and to meet future demand. The Port of Seattle, as of December 31, 2012, had a total debt balance of $3.3 billion dollars, which consisted of the following: (in thousands) Tax Bond Types Exempt Taxable General Obligation 281,790 30,215 Revenue 2,329,085 404,600 PFC Special 157,150 0 Fuel Hydrant Special 100,175 0 Total $ 2,868,200 $ 434,815 Source: SymPro, as of 5/01/2013 Limited Operational Audit Debt Service Audit Objectives The purpose of the audit was to determine whether management has implemented adequate controls to ensure: Timely utilization of refinancing (i.e., refunding) opportunities to reduce overall borrowing costs. Compliance with applicable IRS, State, and Port requirements. Proper debt service cost allocation among divisions, funds, and accounts. The scope of our audit covered the period January 1, 2011, through December 31, 2012. Limited Operational Audit Debt Service Audit Result Management has implemented adequate controls to ensure timely utilization of refunding opportunities, compliance with applicable requirements, and proper debt service cost allocation among divisions, funds, and accounts. No Findings Limited Operational Audit Port Jobs Contract Background Port Jobs is a 501 c (3) non-profit agency that was created in 1993, following the Commission's acceptance of The Working in King County Task Force Report. The Port committed to serve as a catalyst to create new job opportunities and provide a highly skilled workforce for the port-related economy and to identify potential sources of additional public or private funding to assist in providing training and support services to project participants. The Commission authorized the CEO in 2009 to enter into the current three-year contract (with optional two 1- year extensions) to contribute funding towards the following three programs: 1) AOP - Apprenticeship Opportunities Project, 2) Airport Jobs, and 3) Airport University. Source: Port Jobs Annual Report *funders include King County, City of Seattle, and State of Washington Limited Operational Audit Port Jobs Contract Audit Objectives The purpose of the audit was to determine whether management has implemented adequate controls to ensure: Port Jobs met the deliverables of the contract. Port funding met the terms of the agreement and supports the Port's goals and objectives. The scope of our audit covered the period from December 1, 2011 through December 31, 2012, including current activities. Limited Operational Audit Port Jobs Contract Audit Result Management has implemented adequate controls to ensure that Port Jobs met the deliverables of the contract and Port funding met the terms of the agreement and supports the Port's goals and objectives as specified in the contract. No Findings Limited Operational Audit Small Contractor and Supplier Program Background In January 2010, the Port Commission approved Resolution 3618 establishing the Small Contractor and Supplier Program (SCS Program). The SCS Program's primary purpose is to develop beneficial opportunities for the Port and for the regional community of small and disadvantaged businesses. The Office of Social Responsibility (OSR) is charged with implementing the program. Limited Operational Audit Small Contractor and Supplier Program Audit Objectives The purpose of the audit was to determine whether Port management has completely implemented the Small Contractor and Supplier Program (SCS Program) to meet the following five specific goals under Commission Resolution 3618: Provide SCS firms additional opportunities for utilization in Port procurements. Identify and reduce barriers to SCS firms' equal opportunity and participation. Develop comprehensive outreach and communication strategies. Engage with public and private partners for additional resources and best practices. Develop and utilize data monitoring and evaluation resources. The scope of our audit covered the period from January 1, 2012, through December 31, 2012. Limited Operational Audit Small Contractor and Supplier Program Audit Result Port management has materially implemented the Small Contractor and Supplier Program goals required under Resolution 3618, except as discussed below: One Finding Port management did not implement the 5% pricing incentive for the Small Contractor and Supplier Program (SCS). This pricing incentive is required by Port Commission Resolution 3618.
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