Container Operations
Innternal AAudit Reeport Seaaport Conttainer Managemennt Commprehensivve Operattional Auddit Januaryy 1, 2010 to Decemmber 31, 2010 Issue Datee: August 22, 2011 Report No. 2011--13 Internnal Audit Seapport Contaainer Manaagement Compprehensivee Operational Audit Tablee of Contennts Transmmittal Letterr .............................................................................................................. 3 Executive Summaary .......................................................................................................... 4 Backgroound ....................................................................................................................... 5 Audit OObjective .................................................................................................................. 5 Departmment Highlights and AAccomplisshments ............................................................... 6 Audit Scope and MMethodoloogy ......................................................................................... 6 Conclussion ......................................................................................................................... 7 2 Internnal Audit Seapport Contaainer Manaagement Compprehensivee Operational Audit Transsmittal Lettter We havee completedd a comprehensive opeerational auudit of Seapport Containner Manageement Department. The puurpose of thee audit wass to determinne whether managemeent has adeqquate controls to ensure effective opee erations andd compliancee with applicable rules and regulattions. We revieewed informaation relatingg to calendar year 2010.. Managemment has the primary reesponsibilityy to establishh and impleement effecttive controls. Our role wass to assess and test thhose controlls in order to establishh whether thhe controls were adequatee and operatting effectiveely. We condducted the aaudit using ddue professioonal care. TThe audit waas planned aand performed to obtain reeasonable asssurance thaat departmennt controls aare adequatee and operatting effectiveely as intended. The Conntainer Mannagement DepartmentD has adequuate and eeffective conntrols to ennsure operationns are effecttive and in coompliance wwith applicabble requirements. We extend our apprreciation to Seaport ConS ntainer Mannagement Deepartment aand staff for r their assistancce and coopperation durinng the audit.. Joyce Kirangi, CPA Internal AAudit, Director 3 Internnal Audit Seapport Contaainer Manaagement Compprehensivee Operational Audit Executtive Summmary Audit ScopeS and Objective Our audit objective wwas to deteermine if mmanagementt has implemented adequaate controls tto assure that: 1. Teerminal and ccrane rent leease agreemments are efffectively mannaged. 2. Lease and billiing informatiion is effectivvely monitorred in PROPPworks. We revieewed informaation relatedd to the periood from Januuary 1, 20100 to December 31, 2010.. Backgroound Cont a iner opera t ions as a group has four full ti m e equival e nts (FTEs ) and manage s five termin als located o n 500 plus acres. Ter m inal space is leased to and operat e d by private c ompanies that includ e Eagle M arine Servi ces, SSA Terminals, Total Ter m inals Internati o nal, and N o rthland Se rvices. The departmentt is responsible for estaablishing terminal and cranne lease agrreements, and managinng the lease agreementts to ensure that Port assets are propeerly maintainned. The dep a rtment ge n erates 60+ million in o p erating rev e nues and incurs 2+ m i llion in ope r ating expense s . Terminal and crane rent billing is a shared responsibil ity between the depart m ent, Real Est a te Lease A dministratio n, and Port' s Accountin g Departme n t. Audit Reesult Summmary Basedd on the auudit proceduures performmed, Containner Manageement Department has adeequate and effective controls to ensure that teerminal and crane rent lease agreemeents are effecctively manaaged. In adddition, we obbserved that lease and bbilling informmation is effectivvely monitorred. 4 Internnal Audit Seapport Contaainer Manaagement Compprehensivee Operational Audit Backgroound The mis s ion of the d epartment i s to provid e cargo facilities, equip m ent, and s e rvices to e n able custome r s to move g reater am o unts of car g o through t t he Port of S eattle. Con tainer oper a tions include f ive terminal s located o n 500 plus a cres. Ter m inal space is leased t o private ter minal operator s as follows : Terminal 5T - Eagle Ma rine Service s Terminal 18T - SSA Ter m inals Terminal 30T - SSA Ter m inals Terminal 46T - Total Ter m inals Inter n ational Terminal 115T 5 - Northlan d Services. The de p artment h a s four full time equiv a lents (FT E s) to man a ge lease agreement s and generat e s approxim a tely $60+ m illion in o p erating rev e nues annu a lly from te r minal and c rane rent. Th e departme n t directly m anages lea se agreem e nts, but te r minal/cran e rent billing s are coordina ted with Re a l Estate Le a se Admini s tration and P Port's Acco u nting Depa rtment. Summa r y of Opera t ing Incom e and Expe n ses Relat e d to Conta iner Traffic Operatinng Revenuee 2008 20099 2010 Termminal 5 21,061,252 22,065,2399 23,6624,788 Termminal 18 15,481,152 16,678,7022 16,8858,234 Termminal 30 3,8199,158 5,687,9377 7,9979,328 Termminal 46 12,2266,494 12,012,4600 12,5572,521 Termminal 115 4,5322,127 4,593,2077 4,6662,725 Total Operating Reevenue $57,1200,183 $$61,037,5455 $65,6697,596 Operatinng Expensess Termminal 5 (744,951) 529,4155 6622,539 Termminal 18 7588,577 1,103,9355 5589,583 Termminal 30 1,6888,549 2,462,911 2220,894 Termminal 46 1,2866,080 578,4933 4488,937 Termminal 115 2222,385 245,8355 3345,030 Total Operating Exxpenses $3,8800,640 $$4,920,589** $2,2666,983* Source: P e opleSoft/Respo n sibility Reports *significant decrease in exp enses is due to p roject cancelati o ns and delays in 2010. Audit Obbjective The purppose of the aaudit was too determine if managemment has impplemented aadequate conntrols to assuree that: 1. Terminal andT crane rent llease agreemments are effectively maanaged. 2. Lease and billing informaation is effectively monitoored in PROOPworks. 5 Internnal Audit Seapport Contaainer Manaagement Compprehensivee Operational Audit Departmment Highligghts and Acccomplishmments Faced withw ever inncreasing competitionc in 2010, thhe departmment initiatedd a year-loong Customeer Support PackageP prrogram to inncrease conntainer traffiic. The program includded crane rennt rebates annd a thirty-day deferral oof space rennt payments. The proggram contributed to: Record breakR king cargo voolume in 20110 More than 2.1M 1 million TEUU's (twenty-ffoot equivaleent units) Inncrease in operating revvenue from 661.0 million in 2009 to 655.7 million inn 2010 A summaary of TEU'ss from 2001 tto 2010 is ass follows. 2 , 500 Thousands 2 , 000 1 , 500 1 , 000 500 0 2001 2 002200320 0 420052006200720082 0 092010 Source: PPort of Seattle Coontainer and Tonnnage Statistics RReporting Systemm Audit Sccope and Meethodologyy We utilizzed a risk-bbased audit approach from planniing to test sampling. WWe performmed a multitudee of informaation gathering methodss including research, innterviews, observations, and analyticaal reviews in order to obttain a complete understtanding of thhe Containerr Operationss. We conducteed an asseessment of significant risks assocciated with Container Operations, and identifiedd controls to mitigate thoose risks. We evaluated whether thee implementted controls were functioninng as intendded. Based on the risk aassessment,, we establisshed the area of audit foocus. Our additional detailed audit proceduresp on the areaa of audit ffocus can be groupedd and summarized into threee categories: 1. Updating billiU ng information 2. Innsurance & SSurety monittoring 3. MaintenanceM of cranes && facilities 6 Internnal Audit Seapport Contaainer Manaagement Compprehensivee Operational Audit 1. Updaating Billing Information a. Consumer PC Price Index To determineT e the effectivveness of managementm controls to ensure commplete and ttimely CPIC adjustmments to billling, we reeviewed maanagement use of CPPI reminders in PROPworksP for all five current leasec es. We recaalculated 2010 lease ammounts per tterms and conditionns of the agrreements, aand compareed the amouunts to the aactual billed rates too determine whether thee CPI adjustmments were properly moonitored. b. Customer SuC upport Packkage We reviewedW d temporary cost reducttions provideed to the teenants in order to deterrmine whether thew Customer Support PacS ckage for thee four appliccable leasess was effecctively monitored.m We reviewedW the corresppondence filee for timely notification to the tenannts of program initiaation and terrmination. 2. Insurance & sureety monitorring To determine the effectiveness off managemment controols to ensure continnuing adequate/sufficieent insurancee and suretyy coverage oover Port's aassets, we reeviewed: Managemment use of the insurannce and sureety reminders in PROPwworks, the PPort's lease maanagement ssystem. Five leasses for their adequacy aand sufficiency in insurance and surrety coveragge, as defined inn the agreemments. 3. Mainttenance of ccranes & faacilities We identified maanagement controls ovver proper mmaintenancee of the Port's facilitiess and cranees by tenants. To determmine the effeectiveness off such controols, we revieewed: Nine of sseventeen annual crane mechanical certificationns and strucctural inspecctions to ensuree timely certtification andd complete mmitigation effforts of issuues, if any, nnoted during the certificatioon process. Three of the five annnual terminal condition sttudies conduucted by thee Port. Conclussion Based on the audit proceduress performed, Seaport CContainer Maanagement Department has adequatee and effecttive controls to ensure that terminat al and cranee rent lease agreements are effectivelly managed and billing innformation iss effectively monitored. 7
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