Port of Seattle

Internal Audit Report

Comprehensive Operational Audit--Central Processing System

Asset Management

January 1, 2010 to July 31, 2011

Issue Date: October 4, 2011

Report No. 2011-21

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Internal Audit Report

Asset Management System

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Table of Contents

Internal Auditor’s Report ...................................................................................................................................................... 3

Executive Summary ............................................................................................................................................................... 4

Background.............................................................................................................................................................................. 5

Audit Objectives ..................................................................................................................................................................... 6

Highlights and Accomplishments ...................................................................................................................................... 6

Audit Scope and Methodology ............................................................................................................................................ 6

Observation Noted During the Audit ................................................................................................................................. 7

Conclusion ............................................................................................................................................................................... 8

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Transmittal Letter

We have completed an audit of the Port’s asset management system. The asset management

system involves many departments at the Port; however, our audit focused on the functions

performed by the Capital Services team within Accounting and Financial Reporting Department.

The purpose of the audit was to assess controls and determine whether:

1) Newly created assets are entered in the asset management system timely, efficiently and

completely.

2) Asset retirements are recorded in asset management in a timely, efficient and complete

manner.

3) The capital asset list used for the physical inventory in all Divisions is accurate and

complete.

4) Capital Services new asset creation and retirement processes are effective and complete.

We reviewed information relating to the period between January 1, 2010 and July 31, 2011.

Management has the primary responsibility to establish and implement effective controls. Our role

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. The audit was planned and performed to

obtain reasonable assurance that department controls are adequate and operating effectively as

intended.

Based on the audit procedures performed, Capital Services has established adequate and

effective controls related to asset management.

We extend our appreciation to Capital Services Management and staff for their assistance and

cooperation during the audit.

Joyce Kirangi, CPA

Internal Audit, Director

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Executive Summary

Audit Scope and Objective The purpose of the audit was to assess controls and determine

whether:

1) Newly created assets are entered in the asset management system timely, efficiently and

completely.

2) Asset retirements are recorded in asset management in a timely, efficient and complete

manner.

3) The capital asset list used for the physical inventory in all Divisions is accurate and

complete.

4) Capital Services new asset creation and retirement processes are effective and complete.

We reviewed information relating to the period between January 1, 2010 and July 31, 2011.

Background The Port’s investment in capital assets includes land, air rights, facilities and

improvements, equipment, vehicles, furniture and fixtures, and construction work in progress. As of

December 31, 2010, the Port had $5.5 billion in capital assets (net of accumulated depreciation).

The Port’s investment in capital assets increased by $34.2 million in 2010. During 2010, completed

projects totaling $73.8 million were closed from construction work in progress to their respective

capital accounts.

The asset accounting management functions for the Port are handled centrally by the Capital

Services team within the Accounting and Financial Reporting Department. Capital Services tracks

information related to construction work in progress, asset creation, asset existence, and asset

retirement for use in asset management and financial reporting.

Audit Result Summary Capital Services has established adequate and effective controls

related to asset management.

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Background

The asset accounting management functions for the Port are handled centrally by the Capital

Services team within the Accounting and Financial Reporting Department. Port policy dictates that

capital assets be identifiable and have to meet the following criteria:

1) The Port has ownership of the capital asset (i.e. the Port has control over asset use);

2) The capital asset has a useful life of three or more years;

3) The total capital project costs are greater than $20,000.

Note: The capitalization threshold under #3 may include multiple components that form a system asset.

For example, a camera surveillance security system across multiple terminals may be linked through

shared software.

As of July 28, 2011, the Port has 26,130 in-service capital assets with a historical cost of $6.6

billion across several different categories as follows:

In-Service Capital Assets by Category

Asset Category

Historical Cost

(in millions)

Land

$1,652

Building

1,485

Utility and Other Systems

1,047

Structures

1,046

Roads & Grounds

584

Land and Air Rights

306

Equipment

260

Improvements

125

Software

Vehicles

Intangibles

Furniture

Art Work

Total

$6,631

Source: PeopleSoft

Capital Services is responsible for the project costing and asset management information systems,

where they track information reported by the individual business units related to construction work

in progress, asset creation, asset existence, and asset retirement. This information is used to

generate the physical asset inventory list and in financial reporting.

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Audit Objectives

The purpose of the audit was to assess the controls and to determine whether:

1) Newly created assets are entered in the asset management system timely, efficiently and

are complete.

2) Asset retirements are recorded in asset management in a timely, efficient and complete

manner.

3) The capital asset list used for the physical inventory in all Divisions is accurate and

complete.

4) Capital Services new asset creation and retirement processes are effective and complete.

Highlights and Accomplishments

• Capital Services implemented a staff cross-training approach towards many of its functions.

The cross-training approach is intended to promote departmental effectiveness and

efficiency.

Audit Scope and Methodology

We reviewed information for the period January 1, 2010, through July 31, 2011. We utilized a risk-

based audit approach from planning to test sampling. We performed a multitude of information

gathering methods including research, interviews, observations, and analytical reviews in order to

obtain a complete understanding of Capital Services’ operations and environment. We conducted

an assessment of significant risks and identified controls to mitigate those risks. We evaluated

whether the implemented controls were functioning as intended.

We applied additional detailed audit procedures to areas with the highest likelihood of significant

negative impact as follows:

1) Timely Recording of Assets

We identified 349 asset additions between 1/1/2010 and 7/31/2011 as a test population to

determine whether Capital Services records assets in the Asset Management System in a

timely manner. Of 349 assets, we focused on those that were posted more than 30 days

after their in-service date. After having considered a time lag between the enter/post date

and multiple line items for the same asset number, we identified a population of 154 assets.

A sample of 20 assets was judgmentally selected from the population for testing based on

the following criteria:

- Selection of assets from 20 different organizational units;

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- one selection of multiple similar assets with the same asset number or type of asset

for same project, (i.e., MDA Video Implementation);

- A variety of asset types (equipment, buildings, systems, vehicles) concentrating on

those <$500,000.

2) Timeliness of Asset Retirements

We tested to determine whether Capital Services processes asset retirements in a timely

manner. We reviewed retired assets between January 1, 2010 and July 31, 2011 to

establish a test population. We selected ten retirement transactions by focusing on assets

that were entered into the system more than thirty days after the out-of-service-date. The

retired assets were a mix of assets from across the Port’s divisions.

3) Asset Inventory

We reviewed the queries used to produce the capital asset lists for the physical inventory to

determine whether any capital assets were being inappropriately excluded from the

inventory. We compared the queries used by Capital Services to produce the lists for the

Aviation and Corporate divisions with the queries used by Seaport Finance to produce the

lists for the Seaport and Real Estate divisions. The objective was to determine whether the

queries resulted in complete asset lists.

4) Effectiveness of Capital Services in Asset Creation and Retirement

To determine the effectiveness of Capital Services operations in asset activation or

retirement, we reviewed projects between 1/1/2010 and 7/31/2011. A total of ten projects

were selected based on the following risk-based criteria:

- Excluded projects >500K which is the materiality threshold for Moss Adams assets

and a focal point of their review procedures.

- Included projects under but close to Commission Approval requirements ($300,000)

and those between $300,000 and $400,000 for Commission Approval.

- Included those with an apparent budget overrun (budget adjustment approval

required)

Audit Observation that is Outside the Scope of this Audit

The primary focus of the audit was whether the central asset accounting system, as operated and

managed by AFR, is effective and efficient (i.e., timely) with its processes. To test for the

timeliness, we used a risk-based approach. We conducted an asset analysis to determine the

timeliness of asset creation and retirement. Through the analysis, we identified a number of

instances where the creation or retirement of assets in PeopleSoft was delayed, ranging from 30 to

120+ days. We further tested the transactions that appeared late and observed that the delay was

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caused by some Port departments not timely submitting the necessary documents to Capital

Services.

Since our primary focus of the audit was the central accounting system, we will follow up on this

issue when we conduct departmental audits.

Conclusion

Capital Services has established adequate and effective controls related to asset management.