In
nternal Audit
A
Re
eport

Sea
aport Conttainer Managemen
nt
Com
mprehensiv
ve Operattional Aud
dit

January
y 1, 2010 to Decem
mber 31, 2010

Issue Date
e: August 2
2, 2011
Report No. 2011--13

Intern
nal Audit
Seap
port Conta
ainer Mana
agement
Comp
prehensive
e Operational Audit

Table
e of Conten
nts
Transm
mittal Letterr .............................................................................................................. 3
Executive Summa
ary .......................................................................................................... 4
Backgro
ound ....................................................................................................................... 5
Audit Objective
O
.................................................................................................................. 5
Departm
ment Highlights and Accomplis
A
shments ... ............................................................ 6
Audit Scope and Methodolo
M
ogy ......................................................................................... 6
Conclus
sion ......................................................................................................................... 7

2

Intern
nal Audit
Seap
port Conta
ainer Mana
agement
Comp
prehensive
e Operational Audit

Trans
smittal Lettter
We have
e completed
d a comprehensive ope
erational au
udit of Seap
port Contain
ner Manage
ement
Department. The pu
urpose of the
e audit was
s to determin
ne whether manageme
ent has adeq
quate
controls to ensure effective
e
ope
erations and
d compliance
e with applicable rules and regulattions.
We revie
ewed informa
ation relating
g to calendar year 2010..
Managem
ment has the primary re
esponsibility
y to establish
h and imple
ement effecttive controls. Our
role was
s to assess and test th
hose controlls in order to establish
h whether th
he controls were
adequate
e and operatting effective
ely.
We cond
ducted the audit
a
using due
d professio
onal care. T
The audit wa
as planned a
and performed to
obtain re
easonable as
ssurance tha
at departmen
nt controls a
are adequate
e and operatting effective
ely as
intended.
The Con
ntainer Man
nagement Department
D
has adequ
uate and e
effective con
ntrols to en
nsure
operation
ns are effecttive and in co
ompliance with
w applicab
ble requirements.
epartment a
We extend our apprreciation to Seaport
S
Con
ntainer Man
nagement De
and staff forr their
assistanc
ce and coop
peration durin
ng the audit..

Joyce Kirangi, CPA
Internal Audit,
A
Director

3

Intern
nal Audit
Seap
port Conta
ainer Mana
agement
Comp
prehensive
e Operational Audit

Executtive Summ
mary
S
and Objective Our audit objective w
was to dete
ermine if m
managementt has
Audit Scope
implemented adequa
ate controls to
t assure that:
1. Te
erminal and crane
c
rent le
ease agreem
ments are efffectively man
naged.
2. Lease and billiing informatiion is effectiv
vely monitorred in PROP
Pworks.
We revie
ewed informa
ation related
d to the perio
od from Janu
uary 1, 2010
0 to December 31, 2010..
ound Conta
ainer operattions as a group has four full tim
me equivale
ents (FTEs)) and
Backgro
manages
s five terminals located on
o 500 plus acres. Term
minal space is leased to and operate
ed by
private companies
c
that include
e Eagle Marine Servi ces, SSA Terminals, Total Term
minals
Internatio
onal, and No
orthland Services. The departmentt is responsible for esta
ablishing terminal
and cran
ne lease agrreements, and managin
ng the lease agreementts to ensure that Port assets
are prope
erly maintain
ned.
The depa
artment gen
nerates 60+ million in op
perating reve
enues and incurs 2+ miillion in operrating
expenses
s. Terminal and crane rent billing is a shared responsibility between the departm
ment,
Real Esta
ate Lease Administratio
A
n, and Port's
s Accounting
g Departmen
nt.
esult Summ
mary Based
d on the au
udit procedu
ures perform
med, Contain
ner Manage
ement
Audit Re
Department has ade
equate and effective controls to en sure that te
erminal and crane rent lease
agreeme
ents are effec
ctively mana
aged. In add
dition, we ob
bserved that lease and b
billing inform
mation
is effectiv
vely monitorred.

4

Intern
nal Audit
Seap
port Conta
ainer Mana
agement
Comp
prehensive
e Operational Audit

Backgro
ound
The miss
sion of the department
d
is
i to provide
e cargo facilities, equipm
ment, and se
ervices to en
nable
customers to move greater
g
amo
ounts of carg
go through tthe Port of S
Seattle. Container opera
ations
include five
f
terminals located on
n 500 plus acres.
a
Term
minal space is leased to
o private terminal
operators
s as follows::






Terminal
T
5 - Eagle Marine Services
Terminal
T
18 - SSA Term
minals
Terminal
T
30 - SSA Term
minals
Terminal
T
46 - Total Term
minals Intern
national
Terminal
T
115
5 - Northland Services.

The dep
partment ha
as four full time equiva
alents (FTE
Es) to mana
age lease agreementss and
generate
es approxima
ately $60+ million
m
in op
perating reve
enues annua
ally from terrminal and ccrane
rent. The
e departmen
nt directly manages
m
lease agreeme
ents, but terrminal/crane
e rent billings are
coordinated with Rea
al Estate Lea
ase Adminis
stration and P
Port's Accou
unting Department.
Summarry of Operatting Income
e and Expen
nses Relate
ed to Container Traffic
ng Revenue
e
Operatin
Term
minal 5
Term
minal 18
Term
minal 30
Term
minal 46
Term
minal 115
Total Operating Re
evenue
Operatin
ng Expenses
s
Term
minal 5
Term
minal 18
Term
minal 30
Term
minal 46
Term
minal 115
Total Operating Ex
xpenses

2008
21,061,252
15,481,152
9,158
3,819
12,226
6,494
4,532
2,127
$57,120
0,183

9
2009
22,065,239
9
16,678,702
2
5,687,937
7
12,012,460
0
4,593,207
7
$
$61,037,545
5

2010
23,6
624,788
16,8
858,234
7,9
979,328
12,5
572,521
4,6
662,725
$65,6
697,596

(74
4,951)
758
8,577
1,688
8,549
1,286
6,080
222
2,385
$3,880
0,640

529,415
5
1,103,935
5
2,462,911
3
578,493
245,835
5
$
$4,920,589**

6
622,539
5
589,583
2
220,894
4
488,937
3
345,030
$2,26
66,983*

Source: Pe
eopleSoft/Respon
nsibility Reports
*significant decrease in expenses is due to project
p
cancelatio
ons and delays i n 2010.

bjective
Audit Ob
The purp
pose of the audit
a
was to
o determine if managem
ment has imp
plemented a
adequate con
ntrols
to assure
e that:
T
and crane rent lease
l
agreem
ments are e ffectively ma
anaged.
1. Terminal
2. Lease and billing informa
ation is effectively monito
ored in PRO
OPworks.
5

Intern
nal Audit
Seap
port Conta
ainer Mana
agement
Comp
prehensive
e Operational Audit
Departm
ment Highlig
ghts and Ac
ccomplishm
ments
in 2010, th
Faced with
w
ever in
ncreasing competition
c
he departm
ment initiated
d a year-lo
ong
Custome
er Support Package
P
prrogram to in
ncrease con
ntainer traffiic. The program includ
ded
crane ren
nt rebates an
nd a thirty-day deferral of
o space ren
nt payments.
The prog
gram contributed to:




Record
R
break
king cargo vo
olume in 201
10
More
M
than 2.1
1 million TEU
U's (twenty-ffoot equivale
ent units)
In
ncrease in operating rev
venue from 61.0
6
million in 2009 to 65
5.7 million in
n 2010

Thousands

A summa
ary of TEU's
s from 2001 to
t 2010 is as
s follows.
2,,500
2,,000
1,,500
1,,000
500
0
2
2003 200
04 2005 2006 2007 2008 20009 2010
2001 2002
Source: Port
P of Seattle Co
ontainer and Ton
nnage Statistics Reporting
R
System
m

Audit Sc
cope and Me
ethodology
y
We utiliz
zed a risk-b
based audit approach from planniing to test sampling. W
We perform
med a
multitude
e of informa
ation gathering methods
s including research, in
nterviews, observations, and
analytica
al reviews in order to obttain a complete understtanding of th
he Containerr Operationss. We
conducte
ed an asse
essment of significant risks assocciated with Container Operations, and
identified
d controls to mitigate tho
ose risks. We evaluated whether the
e implementted controls were
functionin
ng as intend
ded. Based on the risk assessment,
a
, we establisshed the area of audit fo
ocus.
on the area
p
a of audit ffocus can be grouped
d and
Our additional detailed audit procedures
ee categories:
summarized into thre
1. Updating
U
billing information
2. In
nsurance & Surety
S
monittoring
3. Maintenance
M
of cranes & facilities

6

Intern
nal Audit
Seap
port Conta
ainer Mana
agement
Comp
prehensive
e Operational Audit
1. Upda
ating Billing Information
a. Consumer
C
Price
P
Index
To
T determine
e the effectiv
veness of management
m
controls to ensure com
mplete and ttimely
CPI
C
adjustm
ments to billling, we re
eviewed ma
anagement use of CP
PI reminders in
PROPworks
P
for all five current
c
lease
es. We reca
alculated 2010 lease am
mounts per tterms
and condition
ns of the agrreements, and
a compare
ed the amou
unts to the a
actual billed rates
to
o determine whether the
e CPI adjustm
ments were properly mo
onitored.
b. Customer
C
Su
upport Pack
kage
We
W reviewed
d temporary cost reducttions provide
ed to the te
enants in order to deterrmine
whether
w
the Customer Support
S
Pac
ckage for the
e four appliccable leasess was effecctively
monitored.
m
We
W reviewed the corresp
pondence file
e for timely notification to the tenan
nts of
program initia
ation and terrmination.
ety monitorring
2. Insurance & sure
ment contro
ols to ensure contin
nuing
To determine the effectiveness off managem
ent insurance
e and surety
y coverage o
over Port's a
assets, we re
eviewed:
adequate/sufficie
 Managem
ment use of the insuran
nce and sure
ety reminders in PROPw
works, the P
Port's
lease ma
anagement system.
s
 Five leas
ses for their adequacy and
a sufficien cy in insurance and surrety coverag
ge, as
defined in
n the agreem
ments.
3. Mainttenance of cranes
c
& fa
acilities
anagement controls ov
ver proper m
maintenance
e of the Port's facilitiess and
We identified ma
es by tenants. To determ
mine the effe
ectiveness off such contro
ols, we revie
ewed:
crane
 Nine of seventeen
s
annual crane mechanica l certification
ns and strucctural inspecctions
to ensure
e timely certtification and
d complete m
mitigation effforts of issu
ues, if any, n
noted
during the certificatio
on process.
 Three of the five ann
nual terminal condition sttudies condu
ucted by the
e Port.

Conclus
sion
Based on the audit procedures
s performed, Seaport C
Container Ma
anagement Department has
adequate
e and effecttive controls to ensure that
t
termina
al and crane
e rent lease agreements are
effectivelly managed and billing in
nformation is
s effectively monitored.

7