Internal Audit Report

Louis Dreyfus, Corporation
Lease Agreement No. 228

September 1, 2006 through August 31, 2008




Issue Date: June 2, 2009
Report No. 2009-08

Internal Audit Report
Louis Dreyfus Corporation (No. 228)
Audit Period: September 1, 2006  August 31, 2008

Table of Contents
Internal Auditor's Report ...................................................................................................... 3 
Executive Summary ............................................................................................................ 4 
Background ......................................................................................................................... 5 
Audit Objectives .................................................................................................................. 5 
Audit Scope ......................................................................................................................... 5 
Audit Approach .................................................................................................................... 5 
Conclusion........................................................................................................................... 6 
Summary of Findings and Recommendations ..................................................................... 7 
I. Absence of Key Provisions to Adequately Protect Port Interest 












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Internal Audit Report
Louis Dreyfus Corporation (No. 228)
Audit Period: September 1, 2006  August 31, 2008

Internal Auditor's Report
We have completed the Lease Agreement, as amended, between the Port of Seattle and Louis
Dreyfus Corporation (aka Cargill) for the period of September 1, 2006 through August 31, 2008.
The purpose of the audit was to determine whether: 1) Louis Dreyfus properly reported all tonnage
fees in accordance with terms and conditions of the lease agreement, as amended, and 2) Port
management adequately monitored the agreement.
We conducted the audit using due professional care, and we planned and performed the audit to
obtain reasonable assurance as to whether the Port and the Lessee had complied with provisions
of the agreement.
We have determined that the lessee materially complied with the terms and conditions related to
the tonnage fees, and management adequately monitored the agreement. We however identified
the absence of certain key provisions in the agreement, which are considered necessary to
adequately protect Port interest.
We extend our appreciation to Seaport Industrial Properties Business Development management
and Accounting Financial Reporting (AFR) for their assistance and cooperation during the audit.


Joyce Kirangi, CPA
Internal Audit Manger







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Internal Audit Report
Louis Dreyfus Corporation (No. 228)
Audit Period: September 1, 2006  August 31, 2008

Executive Summary
Audit Scope and Objective The purpose of the audit was to determine whether: 1) Louis
Dreyfus properly reported all tonnage fees in accordance with terms and conditions of the lease
agreement, as amended, and 2) Port management adequately monitored the agreement.
The audit scoped covered the period September 1, 2006 through August 31, 2008.
Agreement Terms The lease agreement No. 228, as amended, authorizes Louise Dreyfus
Corporation to export grain through Pier 86 Grain Terminal. The Lessee pays the Port Tonnage
Fee ranging from $0.40 to $1 per Annual Metric Ton of grain exported through Pier 86 Grain
Terminal. Additionally agreement requires a premise payment of $41,666 on a monthly basis.
Audit Result Summary We have determined that Louis Dreyfus Corporation (LDC) materially
complied with the terms and conditions related to the tonnage fees, and management adequately
monitored the agreement. We however identified the absence of certain key provisions in the
agreement, which are considered necessary to adequately protect Port interest.











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Internal Audit Report
Louis Dreyfus Corporation (No. 228)
Audit Period: September 1, 2006  August 31, 2008

Background
Louis Dreyfus has merchandised and traded bulk agricultural commodities in international markets
since 1851 and has been consistently ranked as one of the world's largest merchandisers of grains
and oilseeds.
On March 26, 1968, the Port entered into a lease and construction agreement with Cargill, Inc. for
designing, building and operating grain terminal facilities. On March 14, 2000 under amendment
#9, the Port agreed to the assignment of the agreement from Cargill to Louis Dreyfus.
On September 1, 2004, the Port management re-negotiated lease agreement terms with Louis
Dreyfus. Louis Dreyfus is required to pay the Port the Premises Lease in amount of $500,000
annually and the concession fees based on the total tonnage of grains exported.
Below is a table of agreement related revenue streams for a 4-year period ending 2008.
Description                 2005            2006            2007            2008
Tonnage Concession Fees    $3,972,457      $5,827,951      $5,340,514      $6,391,198
Space Rental                500,000         500,0000        500,000         500,000
Utilities                           15,711            19,610            22,382            29,593
Others                      101,281         177
Grand Total                $4,589,449      $6,347,738      $5,862,896      $6,920,791
Source: PeopleSoft

Audit Objectives
The purpose of the audit was to determine whether:
Louis Dreyfus properly reported all tonnage fees in accordance with terms and conditions of
the lease agreement, as amended.
Port management adequately monitored the agreement.

Audit Scope
The scope of the audit covered the period of September 1, 2006 through August 31, 2008.

Audit Approach
To achieve our audit objectives, we performed the following procedures:
We obtained an understanding of Louis Dreyfus, Inc. operations.
We reviewed applicable state and local laws, rules and regulations, and Port policies.
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Internal Audit Report
Louis Dreyfus Corporation (No. 228)
Audit Period: September 1, 2006  August 31, 2008

We analyzed the data (internal) to achieve the audit objective.
Conclusion
We have determined that Louis Dreyfus Corporation (LDC) materially complied with the terms and
conditions related to the tonnage fees, and management adequately monitored the agreement. We
however identified the absence of certain key provisions in the agreement, which are considered
necessary to adequately protect Port interest.















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Internal Audit Report
Louis Dreyfus Corporation (No. 228)
Audit Period: September 1, 2006  August 31, 2008

Summary of Findings and Recommendations 

I.   Absence of Key Provisions to Adequately Protect Port Interest
The agreement does not have two key provisions considered necessary to adequately mitigate
the risk of noncompliance related to the tonnage fees.
Specifically the agreement does not have:
1)  An audit clause to allow access to the lessee records to examine underlying document in
order to substantiate the reported payments
2)  A payment term for expected monthly payments to maximize cash flow
The above-mentioned provisions are generally accepted part of basic and necessary elements
in a contract to promote and verify compliance with agreed-upon terms and conditions. In the
absence, the Port can only assume compliance based on shared information. It would be
difficult to verify the reported payments as to the reasonableness and accuracy.
The agreement requires concession on the total tonnage of grains exported, not revenue
generated from operations. Because 1) an audit clause is often narrowly associated with a
financial examination, and 2) the concession in the agreement is based on a non-monetary
consideration, the audit clause was overlooked and not included as part of the agreement.

Recommendation
We recommend that management correct the above weaknesses. Specifically, we recommend
that management include in the lease:
a)     An audit clause to adequately protect Port interest.
b)     A payment term to establish and maximize cash flow.

Management Response
Management agrees with the audit findings that it is advisable to include an audit clause and
payment term language in all leases. Management will make reasonable effort to negotiate the
addition of such language in future lease amendments with this tenant.


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