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INTERNAL AUDIT REPORT LIMITED OPERATIONAL AUDIT PORT TRAVEL CREDIT CARD PROGRAM JANUARY 1, 2015 FEBRUARY 28, 2017 ISSUE DATE: JULY 21, 2017 REPORT NO. 2017-12 PORT TRAVEL CREDIT CARD PROGRAM INTERNAL AUDIT JANUARY 1, 2015 FEBRUARY 28, 2017 TABLE OF CONTENTS TRANSMITTAL LETTER.................................................................................................................................................. 3 EXECUTIVE SUMMARY ................................................................................................................................................. 4 BACKGROUND............................................................................................................................................................... 5 FINANCIAL HIGHLIGHTS.............................................................................................................................................. 5 AUDIT SCOPE AND METHODOLOGY............................................................................................................................6 CONCLUSION ................................................................................................................................................................ 6 SCHEDULE OF FINDINGS AND RECOMMENDATIONS................................................................................................. 7 2 PORT TRAVEL CREDIT CARD PROGRAM INTERNAL AUDIT JANUARY 1, 2015 FEBRUARY 28, 2017 TRANSMITTAL LETTER Audit Committee Port of Seattle Seattle, Washington We have completed an audit of the Port Travel Credit Card Program. We reviewed information for the period January 1, 2015 February 28, 2017. We conducted this performance 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 for their assistance and cooperation during the audit. Joyce Kirangi, CPA, CGMA Internal Audit, Director AUDIT TEAM RESPONSIBLE MANAGEMENT TEAM Roneel Prasad, Internal Auditor Duane Hill, Senior Manager Disbursements Dan Chase, CPA, Acting Audit Manager Rudy Caluza, Director of Accounting and Financial Reporting 3 PORT TRAVEL CREDIT CARD PROGRAM INTERNAL AUDIT JANUARY 1, 2015 FEBRUARY 28, 2017 EXECUTIVE SUMMARY AUDIT OBJECTIVES AND SCOPE The purpose of the audit was: To determine whether management internal controls were effective. We reviewed information for the period January 2015 through February 2017. BACKGROUND The Port of Seattle (Port) issues credit cards to Port commissioners and employees who travel and/or incur Port business expenses. Personal or non-Port charges on Port credit cards constitute a lending of credit and are strictly prohibited. The Accounting and Financial Reporting Department (AFR) administers the travel credit card program which includes establishing and maintaining policies, determining credit limits, reviewing, and issuing travel credit card requests. AUDIT RESULT In general, internal controls were adequate. However, we identified instances where internal controls were not always effective to ensure compliance with state laws and Port Policy (see schedule of findings and recommendations). 4 PORT TRAVEL CREDIT CARD PROGRAM INTERNAL AUDIT JANUARY 1, 2015 FEBRUARY 28, 2017 BACKGROUND BACKGROUND The Port of Seattle (Port) issues credit cards to Port commissioners and employees who travel and/or incur Port business expenses. Personal or non-Port charges on Port credit cards constitute a lending of credit and are strictly prohibited. The Accounting and Financial Reporting Department administers the travel credit card program which includes establishing and maintaining policies, determining credit limits, and reviewing and issuing travel credit card requests. The Port travel credit card program is governed by two Port policies. Accounting and Financial Reporting (AFR) Policy 1 establishes protocols for authorizing and distributing credit cards. The Policy also establishes timelines for validating charges. AFR Policy 2 defines allowable Port business expenses and establishes protocols for incurring and obtaining travel reimbursements. FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS Below reflects the travel and entertainment expenses of the top ten departments: TRAVEL AND ENTERTAINMENT EXPENSE TOP 10 DEPARTMENTS 2015 2016 2017* Total Police Department $135,829 $150,427 $36,112 $322,369 Public Affairs 63,784 105,227 18,120 187,132 International Tourism 81,103 87,503 8,366 176,972 Fire Department 53,204 83,357 36,176 172,738 Commission Office 48,180 89,878 10,552 148,610 Air Serivces Development 87,074 39,000 6,819 132,894 ICT Enterprise Infrastructure Svcs 56,093 68,259 4,975 129,327 Executive 44,510 64,579 156 109,246 Aviation Director's Office 37,480 37,212 32,159 106,851 ICT Business Services 53,529 43,848 5,917 103,295 TOTAL $660,787 $769,291 $159,353 $1,589,431 Data Source: Concur Travel Expense Application * As of February 28, 2017 The Ports travel and entertainment expenses are primarily recorded in the following five accounts: TRAVEL AND ENTERTAINMENT EXPENSE TOP 5 EXPENSE ACCOUNTS 2015 2016 2017* Total Registration Fees/Seminars $395,114 $466,303 $87,196 $948,614 Domestic Air Travel, Other 287,983 301,724 86,360 676,067 Hotel Tax 300,771 316,300 27,264 644,336 Employee Food & Beverage 147,741 161,907 15,191 324,839 Lodging & Other Travel 119,399 126,792 19,234 265,424 TOTAL $1,251,008 $1,373,027 $235,245 $2,859,280 Data Source: Concur Travel Expense Application * As of February 28, 2017 5 PORT TRAVEL CREDIT CARD PROGRAM INTERNAL AUDIT JANUARY 1, 2015 FEBRUARY 28, 2017 AUDIT SCOPE AND METHODOLOGY We reviewed information for the period January 1, 2015 February 28, 2017. We utilized a risk-based approach from planning to testing. We gathered information through research, interviews, observations, and data analytical reviews, in order to obtain a complete understanding of the department operations. We applied additional audit procedures to areas with the highest likelihood of significant negative impact as follows: 1) Selected 20 credit cards issued within the scope period and verified that the application was approved and an appropriate credit limit was established. 2) Determined whether credit card transactions were approved within 30 days by calculating the number of days between the transaction date, and the date the charges were filed online and expensed. This procedure was performed on 100% of transactions charged during the 26 month scope audit period. 3) Selected over 150 transactions and verified that itemized receipts were included and the charge was used for official Port business (Personal or non-Port charges are prohibited). 4) Verified that all 869 outstanding travel credit cards were issued to port employees or officials and did not have the ability to request a cash advance. 5) Validated that individuals were not issued more than one credit card. CONCLUSION CONCLUSION Management internal controls were generally effective. In general, internal controls were adequate. However, we identified instances where internal controls were not always effective to ensure compliance with state laws and Port Policy (see schedule of findings and recommendations). 6 PORT TRAVEL CREDIT CARD PROGRAM INTERNAL AUDIT JANUARY 1, 2015 FEBRUARY 28, 2017 SCHEDULE OF FINDINGS AND RECOMMENDATIONS INTERNAL CONTROLS ARE NOT ALWAYS EFFECTIVE TO ENSURE COMPLIANCE WITH STATE LAWS AND PORT POLICY The Port of Seattle issues travel credit cards to commissioners and permanent employees for Port business-related expenses such as transportation, lodging, meals, and conference registration fees. The Accounting and Financial Reporting Policy (AC-1) clearly states that primary responsibility for validating charges within 30 days resides with the cardholder. AFR has also implemented a process to review submitted receipts in Concur to identify transactions that are not allowable. When unallowable expenses are identified, AFR communicates these exceptions to the cardholder. Concur also sends notifications to the cardholder within two days of incurring a transaction. A reminder email is sent, to both the cardholder and the cardholder's manager, if the transaction was not validated within 30 days from the billing statement date. Accounting Policy 1- Port Travel Credit Cards, Travel Planning, Fund Advances, states (in part): "Cardholders must validate all charges 'on-line using Concur' as soon as possible to substantiate the Port business nature of the expenditure and validate appropriateness of the charges." "Within 30 days of making charges on the credit card, the cardholder must validate the charges and file an expense claim "on-line using Concur." The Accounting and Financial Reporting Department (AFR) will suspend the ability to use credit cards for any accounts having charges that are not validated, expensed and approved through Concur after 60 days of the original billing statement date. Revised Code of Washington section 42.24.115 states, in part: "upon billing or no later than thirty days of the billing date, the officer or employee using a charge card issued under this section shall submit a fully itemized travel expense voucher." "The municipal corporation or political subdivision shall have unlimited authority to revoke use of any charge card issued" Of the total number of transactions from January 2015 through February 2017, 16% were not approved within 30 days from the billing statement date. Table 1 reflects the number of days between the transaction date and the date the transaction was expensed for the period January 1, 2015 through February 28, 2017. Table 2 reflects the number of days between the original statement billing date and the date the transaction was expensed. 7 PORT TRAVEL CREDIT CARD PROGRAM INTERNAL AUDIT JANUARY 1, 2015 FEBRUARY 28, 2017 Table 1 CORPORATE TRAVEL CARD EXPENSE EXPENSE TIMELINE TRANSACTIONS PERCENTAGE AMOUNT PERCENTAGE 1 - 30 days 14,065 69% $2,120,944 63% 31 - 60 4,379 22% 890,038 26 61 - 90 1,037 5% 210,468 6 91 - 339 868 4% 158,745 5 TOTAL 20,349 100% $3,380,194 100% Data Source: Concur Travel Expense Application * As of February 28, 2017 Table 2 CORPORATE TRAVEL CARD EXPENSE DAYS FROM BILLING STATEMENT TRANSACTIONS PERCENT AMOUNT PERCENT 0-30 days 17,096 84% $2,773,480 82% 31-60 days 2,009 10 365,916 11 Greater than 60 days 1,244 6 240,799 7 TOTAL 20,349 100% $3,380,194 100% Data Source: Concur Travel Expense Application * As of February 28, 2017 To ensure compliance with Port Policy and state law, we recommend: 1. Reminding card holders to validate charges within 30 days and the ramifications for not complying. 2. Suspending or reducing the credit limit to $1 for credit card holders that have not validated, expensed, and approved transaction after 60 days of the original billing statement date, unless there are non-reoccurring and valid business reasons why it is not practical for the card holder to expense a transaction during the 60 day from billing date time frame. 8 PORT TRAVEL CREDIT CARD PROGRAM INTERNAL AUDIT JANUARY 1, 2015 FEBRUARY 28, 2017 Management Response: Management agrees with recommendation number 1, to continue to remind card holders to validate card charges within 30 days. In support of this recommendation, the following statement is currently highlighted and very visible in the Concur system "Per Port AC-1 and AC-2 Policy, please expense all credit card charges within 30 days." Management agrees with recommendation number 2, to suspend /reduce the credit limit to $1 for card holders who do not validate their expense transaction within 60 days of the billing date, unless there are non-reoccurring and valid business reasons why it is not practical for the card holder to expense a transaction during the 60 day from billing date time frame. 9
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