2015 Internal Audit Department Budget Memo

The Audit Committee Charter requires that the Committee “Review and recommend to the full Commission the Internal

Audit Department annual budget.” Typically, I bring to the Committee a budget request for discussion and approval

before a budget discussion by the full Commission. This year, however, the timing is such that the full Commission

discussion currently scheduled for September 30 will take place before the Audit Committee’s October meeting. Thus, I

am communicating via this email my 2015 budget requests for Committee consideration.

2015 Overall Budget Highlights and Notes

The proposed budget was prepared under the 2015 Port budget guidelines. The budget complies with the established

guidelines and budget targets.

2013

2014

2015

Amount

Salaries/Wages and Benefits

1,167,551

85.81%

1,229,327

86.46%

1,269,748

86.83%

Outside Services

128,450

9.44%

129,950

9.14%

124,750

8.53%

Travel, Training, and Other Emp

Expense

45,550

3.35%

45,139

3.17%

51,479

3.52%

Telecommunications

5,820

0.43%

5,880

0.41%

5,520

0.38%

General Expense

4,340

0.32%

3,950

0.28%

4,121

0.28%

Equipment Expense

5,950

0.44%

4,560

0.32%

3,760

0.26%

Supplies/Stock

3,000

0.22%

3,000

0.21%

3,000

0.21%

1,360,661

100.00%

1,421,806

100.00%

1,462,378

100.00%

Other than the 3% Port-recommended increase, due to annual performance evaluations, the 2015 budget is essentially

the same as 2014.

• 87% is for staff payroll and benefits.

• 8% is for outsourcing information technology (IT) audits. Specifically, we are proposing $120k to conduct two IT

audits, based on the 3-year IT audit plan developed as part of the Port –wide IT Risk Assessment conducted by

Protiviti in 2012: 1) Port-wide Review of End-Point Security and 2) HIPAA Compliance Assessment.

• 3% is for travel/registration to meet the Continuing Professional Education (CPE) requirements of the

Government Auditing Standards and the International Standards for the Professional Practice of Internal

Auditing.

• The remaining 2% is for sundry items (e.g., cell phone bills, Port Compliance and Ethics Hot Line, professional

membership dues and subscriptions.)

2015 Internal Audit Department Budget Memo

In accordance with the 2015 budget guidelines, Internal Audit is requesting four additional items be added to its 2015

standard budget. These are items that were NOT in the 2014 budget and, therefore, require specific request and

business case justification.

1. Senior Construction Auditor ($102, 708) -- Dedicated to Port Construction Activities

This position would audit all phases and activities of the Port Construction Program, which is projected to cost

$1 billion over the next several years. The proposed Construction Program includes projects, such as:

International Arrivals Facility (IAF), NorthSTAR, Checked Baggage Optimization, Cargo 5 Hardstands, Airfield

Pavement Replacement, and South Satellite Renovation etc.

The Port’s prior major construction program was the 3rd Runway Construction Program. That construction

program was audited after its completion by the State Auditor’s Office, and SAO issued a negative audit report

in 2007. Although the Port has effected significant process improvements related to capital programs, we

believe it is advisable to institute more proactive audit processes.

Therefore, we plan to make construction auditing an integral part of this proposed capital construction program.

A construction program involves many activities: internal labor, material and tool purchases, and equipment

used on the job site. It also involves many outside parties, including contractors, subcontractors, consultants,

vendors, and suppliers. The complexity of this program presents inherent risks.

Construction auditing would assess and address risks from the beginning of this capital program. This proposed

position will plan and conduct audits in each of the key capital project life-cycle phase (project planning,

contract planning, project management etc.), interpret and review different types of construction contracts,

review contracts for compliance with contract terms and conditions, and provide an independent audit

oversight of the capital construction program. We believe it is best practice to make auditing an integral part of

this upcoming construction project.

This capital construction activity was not part of our audit universe in our prior years’ work plans. Therefore, this

additional level of audit effort in 2015 will require an additional FTE. Based on the recent interest that we have

seen from the Port Commission, Internal Audit would like to take a proactive approach and provide audit

assurance to the Commission that this construction program is planned and executed in accordance with the

expectations.

2. Contracted Services for Subject Matter Experts (SMEs) -- $100k

Additionally, we are requesting $100k in contracted services for subject matter experts (SMEs) to help with

ongoing audits. The Port is a complex organization and very diverse in its activities, operations, programs, and

systems. The subject matter experts will provide expertise, as needed, in unique fields. The idea is not

necessarily for the SME to provide auditing services, but instead to provide independent guidance, advice, and

expertise to the auditors in the specialized fields (on as-needed basis) in order to make our audits more

effective.

Examples of expertise needed in certain areas that we audit -- not all inclusive:

• Information technology including security and software

• Unique activities of the Port, such as:

o Conference center operations.

2015 Internal Audit Department Budget Memo

o Hospitality industry expertise.

o Retail display practices and/or food operations.

o Moorage and marina operations.

o Real estate market valuation.

o Insurance.

o Airport operations.

Additionally, in 2015, we plan to hire a construction auditing firm which specializes in construction auditing and

training, to help us establish an effective long-term construction audit work plan. After the construction plan is

established, the construction auditor will execute the construction audit work plan.

3. ACL Analytics Tool – Server Version -- $15k

ACL Analytics Exchange is an analytics tool that facilitates efficiency and promotes collaboration in audit

analytics. ACL is a well-known and widely used analytics tool in the audit industry.

The Internal Audit Department currently has three licenses for the ACL desktop version. We want to replace

these licenses with a server version. Fees and licenses will be an annually recurring expenditure.

Existing licenses are individual. Each license is a stand-alone application on three laptops. Each user has different

levels of expertise with the software, which creates inefficiencies.

The server version would allow audit staff to leverage super users of ACL and:

• Share standard queries.

• Share ad-hoc analysis.

• Implement consistency and change control.

• Enhance data integrity.

• Repeat audit data analysis.

• Accommodate very large tables.

• Extract and analyze data on an established schedule.

• Process data on the server, freeing system resources.

• Ensure better security, as data is stored and controlled on the server.

4. Peer Review by ALGA --- S15k

At the direction of the Audit Committee, Internal Audit underwent a peer review by the Association of Local

Government Auditors (ALGA) for the period ending June 30, 2012. The audit covered two standards: 1) Yellow

Book -- Government Auditing Standards issued by the Comptroller General of the United States and 2) Red Book

– International Standards for the Professional Practice of Internal Auditing issued by Institute of Internal

Auditors.

Internal Audit is due for another peer review in the second half of 2015. Although the two standards impose

different requirements, it is more cost effective to have the peer review conducted for both standards at the

same time. Hence, we are requesting a one-time expenditure of $15k in our 2015 budget to cover the peer

review cost.