Port of Seattle

Internal Audit Report

Port's Central Billing and Accounts Receivable System Audit

Current Practices in 2010




Issue Date: October 5, 2010
Report No.: 2010-16

Internal Audit Report 
Port's Central Billing and Accounts Receivable System Audit
Audit Period: Current Practices in 2010

Table of Contents

Internal Auditor's Report .............................................................................................................................................. 3 
Executive Summary .......................................................................................................................................................4 
Background...................................................................................................................................................................... 5 
Scope of the Audit .......................................................................................................................................................... 7 
Audit Approach ............................................................................................................................................................... 7 
Conclusion ....................................................................................................................................................................... 7 















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Internal Audit Report 
Port's Central Billing and Accounts Receivable System Audit
Audit Period: Current Practices in 2010

Internal Auditor's Report
We have completed an audit of the Port's billing and accounts receivable process. The billing and
accounts receivable process involves numerous departments at the Port; however, our audit focused
on the functions performed by the Revenue Services team within Accounting and Financial Reporting.
The purpose of the audit was:
To determine if the Port has implemented effective controls to ensure that the billing and
accounts receivable system is efficient, complete, and accurate with respect to:
o  System access and segregation of duties
o  Accounts receivable aging
o  Credits and write-offs to customer account balances
o  Pier 69 receipting and cash handling procedures
Management has the primary responsibility to establish and implement effective controls. Our audit
objective was to assess and test those controls in order to establish whether the controls were
adequate and operating effectively.
We conducted the audit using due professional care. We planned and performed the audit to obtain
reasonable assurance that the risks impacting billing and accounts receivable were sufficiently
mitigated through effective internal controls.
The Accounting and Financial Reporting department has established adequate and effective controls
related to billing and accounts receivable, and there were no significant issues noted during the audit.
We extend our appreciation to the Accounting and Financial Reporting department for their assistance
and cooperation during the audit.


Joyce Kirangi, CPA
Director, Internal Audit




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Internal Audit Report 
Port's Central Billing and Accounts Receivable System Audit
Audit Period: Current Practices in 2010
Executive Summary

Audit Scope and Objective The purpose of the audit was:
To determine if the Port has implemented effective controls to ensure that the Billing and
Accounts Receivable system is efficient, complete, and accurate with respect to:
o  System access and segregation of duties
o  Accounts receivable aging
o  Credits and write-offs to customer account balances
o  Pier 69 receipting and cash handling procedures
The scope of the audit included current billing and accounts receivable practices in 2010.
Background  The billing and accounts receivable functions for the Port are handled centrally by the
Revenue Services team within Accounting and Financial Reporting. Any items billed by the Port must
be processed by Revenue Services. The individual business units are responsible for determining how
much to bill each customer, and Revenue Services provides resources to assist the business units in
ensuring that their bills are accurate. Revenue Services is also responsible for managing their accounts
receivables and collection efforts, and for assessing finance charges and one-time late fees. Revenue
Services has 15 FTEs and bills approximately $1/2 billion per year.
Audit Result Summary The Accounting and Financial Reporting department has established
adequate and effective controls relating to billing and accounts receivable, and there were no
significant issues noted during the audit.








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Internal Audit Report 
Port's Central Billing and Accounts Receivable System Audit
Audit Period: Current Practices in 2010

Background
The billing and accounts receivable functions for the Port are handled centrally by the Revenue
Services team within Accounting and Financial Reporting. Revenue Services processes bills for the
Port's individual business units and manages their accounts receivable and collection efforts. The
individual business units are responsible for determining how much to bill each customer, and Revenue
Services provides resources to assist the business units in ensuring that their bills are accurate. Any
items billed by the Port must be processed by Revenue Services. The Revenue Services team has 15
FTEs, including 1 senior manager and 2 supervisors. 

The following table highlights the amount of bills processed by Revenue Services each year 
Business Unit            2008           2009        2010 (as of 7/31)       Total          %
Lease STIA               289,514,650     301,448,768       170,931,270    761,894,688     59%
Lease Marine              84,334,802      83,843,897        44,941,341     213,120,041     17%
Corporate STIA             65,747,487      63,765,425        33,918,102     163,431,014     13%
Containers                  21,907,981      17,450,720        11,477,730      50,836,431      4%
Ground Access             9,914,653       9,564,153         5,783,072     25,261,878      2%
Shilshole Bay Marina          8,010,704        8,681,757         5,126,575      21,819,037       2%
Airfield                          14,592,234         4,381,729             219,029       19,192,991        1%
Corporate Marine             4,320,106       6,928,789         2,398,627      13,647,522      1%
Cargo                     3,265,438       3,467,587        2,105,623      8,838,648      1%
Fishermen's Terminal         2,490,656       2,572,405         1,679,637       6,742,698      1%
Group Insurance             1,453,602       1,419,827           749,893       3,623,322      0%
ID Access                    570,174         489,982           435,911       1,496,067      0%
Harbor Island Marina            431,144         432,144           244,022       1,107,311       0%
Maritime Industrial Center       192,624          153,305            119,262          465,192       0%
Bell Harbor Marina                                 44,867             38,925          83,793       0%
Foreign Trade Zone             10,000               0                 0          10,000      0%
Rental Houses                  3,600           6,400           (3,500)           6,500      0%
Total                        506,759,855      504,651,755       280,165,519   1,291,577,133    100%
Source: PeopleSoft
In addition to processing the bills requested by the individual business units, the Revenue Services
team is also responsible for assessing any finance charges or one-time late fees that may be
necessary. Depending on the applicable customer agreement or Tariff, the customer may be subject to
a finance charge (interest) and/or a one-time late fee. Finance charges are normally assessed at 18%
per annum. Revenue Services initiates a finance charge calculation once a month (usually around the
16th), and any affected customers will be assessed a finance charge on their past due balance as of
that date.
One-time late fees, on the other hand, are different from finance charges in three main ways:
1.  One-time late fees are assessed only once, whereas finance charges may be assessed until the
balance is paid in full. Most lease agreements containing a late-fee clause call for 5% fee on
any overdue amount not received within 10 days of the due date.
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Internal Audit Report 
Port's Central Billing and Accounts Receivable System Audit
Audit Period: Current Practices in 2010

2.  One-time late fees can be quite significant in comparison to finance charges. Since finance
charges are only assessed at less than 0.05% per day, they are usually rather immaterial in
comparison to a 5% charge on the total amount due.
3.  One-time late fees cannot be calculated automatically by the current system in the same way
that finance charges are calculated. Since every lease agreement is different, the system
cannot automatically generate one-time late fees across the board. Instead, Revenue Services
has to manually track payments and manually prepare late fee invoices when necessary.
Revenue Service began monitoring and assessing one-time late fees in September 2009, and
improved on those procedures in March 2010. As of April 2010, they have implemented effective
controls to ensure that any late payments are assessed a one-time late fee if required by the
agreement.
The following graph shows the number of one-time late fees charged between August 2009 and
September 2010. Considering that the Port has over 700 various agreements, the overall number of the
late fee assessments does not seem significant.







Source: PeopleSoft
The one-time late fee appears effective in encouraging timely payments with airport customers. The
number of one-time late fee assessments for airport customers has been steadily decreasing since the
implementation of the control. For Seaport customers, however, the control does not appear to be
equally effective. Further analysis disclosed, that while there are repeat late-payment customers, a half
of those customers were late only once or twice. The remaining Seaport late-payment customers are
generally small businesses with cash flow difficulties.

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Internal Audit Report 
Port's Central Billing and Accounts Receivable System Audit
Audit Period: Current Practices in 2010
Audit Objective
The purpose of the audit was:
To determine if the Port has implemented effective controls to ensure that the Billing and
Accounts Receivable system is efficient, complete, and accurate with respect to:
o  System access and segregation of duties
o  Accounts receivable aging
o  Credits and write-offs to customer account balances
o  Pier 69 receipting and cash handling procedures
Scope of the Audit
The scope of the audit included current billing and accounts receivable practices in 2010.
Audit Approach
To achieve the audit objectives, we performed the following procedures:
Identified the potential risks facing the billing and accounts receivable function.
Obtained a detailed understanding of the billing and accounts receivable process, and identified
the internal controls designed to mitigate each risk.
Reviewed and tested the internal controls relating to system access, accounts receivable aging,
credits and write-offs, and Pier 69 cash handling.
Obtained and analyzed relevant financial and non-financial data.
Prepared a detailed risk assessment.
Performed detailed tests of transactions to achieve the audit objectives.
Conclusion
The Accounting and Financial Reporting department has established adequate and effective controls
relating to billing and accounts receivable. There were no significant issues noted during the audit. 
With respect to our audit objectives, the Port has implemented effective controls to ensure that:
o  System access is adequately restricted to ensure proper segregation of duties.
o  The accounts receivable aging schedule includes all amounts owed to the Port, including
finance charges and one-time late fees.
o  Credits and write-offs require proper approval, including Commission disclosure when
necessary.
o  Cash and Checks deposited through Pier 69 are properly accounted for and safeguarded.


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