Internal Audit Report 

Limited Operational Audit 
Accountability for Tools and Equipment under $20,000, from 
Acquisition to Surplus and Disposal 

January 1, 2012 - April 30, 2013 




Issue Date: February 4, 2014 
Report No. 2014-01

Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 

Table of Contents 


TRANSMITTAL LETTER ........................................................................................................... 3 
EXECUTIVE SUMMARY ........................................................................................................... 4 
BACKGROUND ......................................................................................................................... 5 
HIGHLIGHTS AND ACCOMPLISHMENTS ............................................................................... 5 
AUDIT SCOPE AND METHODOLOGY..................................................................................... 6 
CONCLUSION ........................................................................................................................... 7 
SCHEDULE OF FINDINGS AND RECOMMENDATIONS ........................................................ 8 
1.   THE PORT'S MANAGEMENT CONTROLS ARE NOT ADEQUATE TO ENSURE ACCOUNTABILITY FOR
TOOLS AND EQUIPMENT UNDER $20,000. 









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Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 

Transmittal Letter 


Audit Committee 
Port of Seattle 
Seattle, Washington 

We have completed an audit of the Port's Accountability for Tools and Equipment under $20,000, from
Acquisition to Surplus and Disposal. We reviewed disbursement information for the period January 1,
2012 - April 30, 2013. However, for the testing of the tracking lists, we selected samples from the
various departments' historical databases. 
We conducted the audit in accordance with Generally Accepted Government Auditing Standards and
the International Standards for the Professional Practice of Internal Auditing. 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 objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 
We extend our appreciation to the management and staff of Accounting and Financial Reporting and
the managers and staff of the other departments for their assistance and cooperation during the audit. 


Joyce Kirangi, CPA, CGMA 
Internal Audit, Director 

Audit Team: 
Margaret Songtantaruk, Senior Auditor 
Ruth Riddle, Senior Auditor 
Jack Hutchinson, Audit Manager 



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Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 
Executive Summary 

Audit  Scope  and  Objectives  The purpose of the   audit was to determine whether  Port
management controls are adequate to ensure tools and equipment purchases under $20,000 are: 
1.  Accounted for and safeguarded. 
2.  In compliance with requirements governing surplus and disposal. 
We revieweddisbursement  information for the period January 1, 2012 - April 30, 2013. However, for
the testing of the tracking lists, we selected samples from the various departments' historical
databases. 

Background  The Port's threshold to distinguish capital assets from personal property (expensed
items) is $20,000. Generally accepted accounting principles (GAAP) prescribe how to account for and
report capital assets.
Accountability for of tools and equipment (personal property), which was the focus of this audit, is at
management's discretion.  Expensed items include tools and equipment and inventory. We did n ot
include inventory in the scope of this audit. We audit inventory separately as part of departmental
auditsmainly in the maintenance shops. 
During 2011 and 2012, the Port expended $2.8 and $3.3 million, respectively, on tools and equipment.
Many of these items are considered "small and attractive" and at risk of loss and misuse.

Audit Result Summary  Port management controls are not adequate to ensure tools and equipment
purchases under $20,000 are properly accounted for and safeguarded and in compliance with
requirements governing surplus and disposal, as described in Finding 1. 







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Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 
Background 
The Port's threshold to distinguish capital assets from personal property (expensed items) is $20,000. 
Generally accepted accounting principles (GAAP) prescribe how to account for and report capital 
assets.
Accountability for of tools and equipment (personal property), which was the focus of this audit,                                        is at
management's discretion.  Expensed items include tools and equipment, and inventory. We did no t
include inventory in the scope of this audit.              We audit inventory separately as part of departmental
auditsmainly in the maintenance shops.
During 2011 and 2012, the Port expended $2.8 and $3.3 million, respectively, on tools and equipment.
Many of these items are considered "small and attractive" and at risk of loss and misuse. 
At the Port, tools and equipment including Information Technology items are the responsibility of
individual departments. Each department provides accountability for and safeguarding of its tools and
equipment. We expected department-level controls to include maintenance of tracking lists of tools and
equipment under $20,000 and conduct periodic physical inventories of the items on the lists. We
observed that depending on the complexity of department operations, managers maintained various
tracking methods of tools and equipment. Some departments maintained Excel spreadsheets or
produced ad-hoc reports from various automated systems.
Financial Highlights 
Tools and Equipment by Account Code and Year 
Account Code          Description            2011       2012 
61600     Furniture/Equipment               $ 847,104   $ 1,161,533 
61650     Radios                         166,890    310,980
61700     Shop Tools/Miscellaneous Equipment        230,242    305,090 
61760     Computers/Telephones              1,525,306   1,522,911
TOTAL       $2,769,542   $ 3,300,514 
Data Source: PeopleSoft 
Tools and Equipment by Division and Year 
Division                      2011        2012 
Aviation                                        $ 918,634    $1,072,056 
Capital Development                              114,318     201,559
Corporate                                    1,168,496    1,153,185 
Real Estate                                      511,156     554,714
Seaport                                       56,938     319,000 
TOTAL      $ 2,769,542   $3,300,514
Data Source: PeopleSoft 

Highlights and Accomplishments 
The Port's Accounting and Financial Reporting Department issued Policy AC-13, Disposition of 
Property, effective February 1, 2013. 
The Port's Accounting and Financial Reporting Department is in process of issuing Policy AC-
14, Small and Attractive Personal Property, which will provide guidance on accounting for and
safeguarding of expensed items under $20,000.
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Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 

Audit Scope and Methodology 
We reviewed information for the period January 1, 2012 - April 30, 2013. However, for the testing of the 
tracking lists, we selected samples from the various departments' historical databases.                     We utilized a
risk-based audit approach from planning to testing.  We gathered information through research,
surveys, interviews, observations, and data analysis, in order to obtain a complete understanding of the
processes that govern tools and equipment purchases under $20,000, from acquisition to surplus and 
disposal. 
We applied additional detailed audit procedures to areas with the highest likelihood of significant
negative impact. We selected tools and equipment samples, based on the following information: 
Objective 1 - Port management controls are adequate to ensure accounted for and safeguarded. 
We conducted a Port-wide survey of 36 departments within the Port's 5 divisions. We focused on
departments with expenditures in 2012 and 2013 for tools and equipment charged to General Ledger
Accounts 61600, 61650, 61700, and 61760. We inquired about management policies and procedures 
to account for tools and equipment purchases under $20,000. We expected department-level controls
to include maintenance of lists of tools and equipment under $20,000 and periodic physical inventories
of the items on the lists. Depending on the complexity of department operations, managers maintained
lists in Excel spreadsheets or produced ad-hoc reports from various automated systems.
We received 26 department responses to the survey. Based on the survey and other risk factors
(purchase volume, voucher analysis, types of purchases), we selected 8 departments for testing. Of
the 8 departments selected, 6 had responded to the survey. We selected 2 of the departments based
on other risk factors. 
We conducted the following procedures: 
Completeness of the tools and equipment on the departments' tracking lists: 
o  We selected 195 purchase transactions from 7 departments and traced them to the 
departments' tools and equipment lists. We based the selections on voucher analysis at
the vendor level, identifying transactions we expected to be on the departments' lists. 
o  We selected 428 physical items from 32 locations within 8 departments and traced the
items to the departments'  tools and equipment lists. We based  selections on
attractiveness for personal use, perceived age, and/or estimated value. These factors
suggest higher risk of omission from the lists. 
Existence of the tools and equipment on the departments' tracking lists: 
We selected 378 items from 8 departments' tracking lists and traced them to the physical items. 
We selected items based on attractiveness and susceptibility to loss and misuse. 

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Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 
Objective 2  In compliance with requirements governing surplus and disposal. 
Policy AC-13 was effective February 1, 2013. Thus, the timeframe from which we selected disposals 
was from February 1, 2013 - April 30, 2013. Only a limited population of disposed items was available
for testing. 
We selected 25 items from 3 departments and examined the items for the following AC-13
requirements: 
Disposition form mandated by AC-13 completed. 
Information in disposition form agreed to tracking list. 

Conclusion 
Port management controls are not adequate to ensure equipment purchases under $20,000 are
accounted for and safeguarded and in compliance with requirements governing surplus and disposal,
as described in Finding 1. 












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Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 

Schedule of Findings and Recommendations 
1.  THE  PORT'S  MANAGEMENT   CONTROLS  ARE     NOT  ADEQUATE  TO  ENSURE
ACCOUNTABILITY FOR TOOLS AND EQUIPMENT UNDER $20,000. 

Port-wide Survey 
As noted in the table below, there were approximately 59 Port departments with tools and
equipment purchases under $20,000 during the audit period. We conducted a Port-wide survey of 
about 36 departments within the Port's 5 divisions. We received responses from 26 departments. 
Departments with 
Divisions                               Departments Surveyed     Survey Responses 
Tools & Equipment Charges 
Capital Development              6                    5                  2 
Real Estate                     11                     5                   3 
Seaport                      11                    5                  5 
Corporate                     17                    12                  9 
Aviation                        14                      9                    7 
59                    36                  26 

The 26 departments represent 55% of Port-wide expenditures on tools and equipment during the
audit period. The departments have developed various processes to track and safeguard tools and
equipment. The survey responses indicated weaknesses in management controls, as follows: 
Of the 26 departments, 20 did not have written procedures related to tracking tools and
equipment, conducting physical inventories, and processing dispositions. 
Of the 26 departments, 9 did not tag tools and equipment under $20,000. 

Properly Accounted For and Safeguarded 
Sample of 195 Voucher Transactions Traced to Tracking Lists 
We determined that 20 transactions (10%) were not included in the department tracking lists.
We further determined that 55 transactions (28%) were miscoded (i.e., not coded to General
Ledger Accounts 61600, 61650, 61700, and 61760, on which we focused our audit and
analysis). We observed inconsistent processes within departments and/or incomplete tracking
records.



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Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 

Sample of 428 Physical Items Traced to Tracking Lists 
Type of Equipment        # of Test 
Items Not Located 
Count*     %** 
Laptops & Desktops                  113        4 
Tablets                              3        0 
Printers                               24        16 
Monitors                            97        8 
Other IT Items (projectors/TVs/Radios)        46       18 
Tools                             145       53 
Total      428       99       23% 
* Each department is accountable for its tools and equipment. One desktop and 2 monitors not located in the department or IT tracking lists, were
found in the Port's historical database. 
** The exception rate cannot be extrapolated to the entire population of expenditures, as the sample was not a statistical sample. 
Sample of 378 Items Traced from Tracking Lists to Physical Items 
Items Not Located 
Type of Equipment        # of Test 
Count*     %** 
Laptops & Desktops                   62        4 
Tablets                             27        0 
Printers                               17         8 
Monitors                            19        3 
External Hard Drives                    18       15 
Other IT Items (projectors/TVs/Radios)        12        2 
Tools                             223       42 
Total      378       74       20% 
* Each department is accountable for its tools and equipment. 
** The exception rate cannot be extrapolated to the entire population of expenditures, as the sample was not a statistical sample. 
To the extent practical, we conducted alternative procedures to verify items we could not
physically inspect. We "pinged" 1 electronic devices. We obtained pictures of tools.
We cannot assign a dollar value to the 74 items, as departments do not consistently capture
costs in their tracking lists.  Nothing came to our attention to indicate the items not located had
been misappropriated or misused.
We visually inspected the methods of safeguarding tools and equipment at the 8 departments.
We observed the following deficiencies: 
o  Port of Seattle tags not affixed to items. (Of the 428 selected, 76 not tagged.) 
o  Items no longer in use stored in closets and cabinets, instead of proper disposition.

1 "Ping" is a computer network administration utility used to test the reachability of a host (computer) on an Internet Protocol 
(IP) network. 
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Internal Audit Report 
Accountability for Tools and Equipment under $20,000, 
from Acquisition to Surplus and Disposal 
January 1, 2012  April 30, 2013 
The testing exceptions are due tolack of clear guidance and understanding of              the requirements.
Training, although provided by Accounting and Financial Reporting, has not been sufficient to 
ensure departments' processes are efficient and effective. 
Compliance with Requirements Governing Surplus and Disposal 
AC-13 provides Port-wide guidance to ensure consistent and proper disposals, but departments' 
awareness, comprehension, and implementation of AC-13 varies. 
Our sample of 25 disposals indicated the following: 
For 16 items (64%), the departments had not completed and transmitted the required
disposition form per AC-13 to the appropriate parties.
For the 16 items, the departments could not provide other documented evidence of
disposition.
Recommendations 
a.  Develop, disseminate, and provide training on Port-wide guidance that will help ensure
accountability for and safeguarding of tools and equipment purchases under $20,000. 
b.  Provide guidance to departments on the development of processes that will be efficient and
effective for their unique environments. 
c.  Provide more training on Policy AC-13. 
Management Response 
We understand that the audit issues forming the findings/conclusion are: (1) some Port
departments "did not have procedures related to tracking, physical inventories and dispositions";
(2) some departments "did not tag tools and equipment under $20,000"; (3) some small assets
"were not included in the department tracking lists"; and (4) some departments "had not completed
and transmitted the required disposition form" nor "could not provide other documented evidence of
disposition."
As we shared early on at Audit Entrance, the Port had underway the development of a "Small and
Attractive Assets" policy (AC-14) to serve as Port-wide guidance. This policy was completed a
couple of months ago and has awaited completion of the audit prior to release. The policy, at
minimum, addresses the concerns noted in the audit report relating to a need for a clear Port-wide
policy, and the tagging and tracking of small assets. Additionally, the policy goes further to provide
clarity on Port department accountability by small asset type, recording the assets into an inventory
database and their subsequent removal, asset transfers and redistribution between departments,
and physical inventory requirements. Port policy AC-13  Disposition of Property, issued early
2013, provides a comprehensive set of protocols on the requirements involving small asset
disposals, related to which we understand the audit identified areas of non-compliance to the policy. 
With the issuance of Port Policy AC-14, along with providing better training to Port departments per
the audit recommendation, the Port will improve accountability and safeguarding of small assets
and fully respond to the audit findings and recommendations. 
We sincerely appreciate Internal Audit's work in this area and value the insight provided.
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