INTERNAL AUDIT REPORT

Operational Audit

Equipment Acquisition, Monitoring and Disposal

January 2015 – December 2019

Issue Date: March 11, 2020

Report No. 2020-03

INTERNAL AUDIT

Equipment Acquisition, Monitoring and Disposal

TABLE OF CONTENTS

Executive Summary ................................................................................................................................................ 3

Background ............................................................................................................................................................. 4

Audit Scope and Methodology ............................................................................................................................... 5

Schedule of Findings and Recommendations ....................................................................................................... 6

Appendix A: Risk Ratings ..................................................................................................................................... 10

Equipment Acquisition, Monitoring and Disposal

Executive Summary

Internal Audit completed an audit of the acquisition, monitoring and disposal of equipment at the Port of

Seattle’s fire department for the period January 1, 2015 through December 31, 2019. The purpose of

this audit was to follow up on a hotline complaint regarding the misappropriation of equipment and to

assess the adequacy and effectiveness of internal controls over asset management.

(Low) Our work found that in several instances the disposal of certain assets did not follow Port policy

AC-13, however, the value of these assets was de minimis and could have been due to a general

unfamiliarity with the policy. The details of the complaint and Internal Audit’s conclusion on each item

is further detailed in the table on page six of this report.

(Medium) We also noted an opportunity for the fire department to work with Finance to enhance their

tracking and disposal of small and attractive assets to assure that they comply with Port Policy AC-14.

The policy provides guidance and Port requirements for management of small and attractive Assets.

This issue is further discussed beginning on page eight of this report.

We extend our appreciation to fire department management and staff for their cooperation during the

audit.

Glenn Fernandes, CPA

Director, Internal Audit

Responsible Management Team

Laurel Dunphy, Director Airport Operations

Randy Krause, Fire Chief

Equipment Acquisition, Monitoring and Disposal

Background

As a government agency, the Port has an obligation to demonstrate public accountability for its

operations and purchases. Every asset purchased, including small and attractive assets need to be 1)

purchased for a valid business purpose, 2) tracked and safeguarded to assure continued usefulness for

its intended purpose, and 3) properly disposed of.

Small and attractive assets, as implied by the name, are generally “small” in size and purchase price

(i.e., $5,000), and “attractive” as a degree of susceptibility to misuse (e.g., personal uses). In addition to

this inherently higher risk of theft or misuse, there are other reasons such as legal compliance, grant-

funding, potential liability and safety, etc., for a structured system of accountability. There are two Port

Policies, Policy AC-13, Disposition of Property, and Policy AC-14, Small and Attractive Assets that

address these assets.

The current agency system for purchasing, safeguarding, tracking and disposing of small and attractive

assets is a decentralized process. Individual departments and their respective assigned custodians are

responsible for: tracking and reporting small and attractive assets on an annual basis, certifying their

existence, and assuring that the asset databases are accurate. Policy AC-13 requires that small and

attractive assets are marked and identified, inventoried, and physically counted annually. The inventory

count must be reconciled to inventory records and any discrepancies must be investigated by the

controlling department/division and documented with annual inventory listings.

The fire department primarily utilized MS Excel to maintain an inventory listing of assets. The inventory

list was not standardized or updated regularly and did not contain critical information such as date of

acquisition, description of asset, location, disposal date, serial number, asset number, etc. Without a

detailed inventory list, it is difficult for departments to maintain an adequate system to monitor assets

with a high risk of theft.

During our audit, we learned that the fire department encountered difficulty in understanding the

requirements of the Policies. The Port’s finance department has been tasked with updating the policies

with clearer expectations. The new policies are in draft form awaiting executive approval. After the new

policies are approved, Finance is planning on providing training to departments Port-wide. The new

policies and training may help in decreasing the potential for misunderstanding of requirements and

thereby may strengthen the monitoring process across the Port.

Equipment Acquisition, Monitoring and Disposal

Audit Scope and Methodology

We conducted the engagement 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 conduct an engagement to obtain sufficient, appropriate evidence to provide a

reasonable basis for our findings and conclusions based on our engagement objectives. We believe that

the evidence obtained provides a reasonable basis for our findings and conclusions based on our

engagement objectives.

The period audited was January 2015 through December 2019 and included the following procedures:

Equipment Acquisition and Monitoring

• Obtained an understanding of the fire department’s processes over acquisition, receipting,

inventory and monitoring of equipment.

• Selected assets that were of a higher risk of theft and misappropriation (generators, small tools,

ladders, and large dollar value) and those reported to Internal Audit through the hotline.

• Traced selected assets to inventory control sheets and verified those through observation.

Equipment Disposal

• Obtained an understanding of the fire department’s process over disposal of equipment through

inquiry and observation of inventory control sheets and disposition forms.

• Traced known assets that were not in the Department’s possession to proper disposition forms.

Equipment Acquisition, Monitoring and Disposal

Schedule of Findings and Recommendations

The following table summarizes the allegations that were brought to our attention and the results of our

testing. Our conclusions were based on the information provided to us during the course of our audit.

Allegation

Audit Testing

Conclusion

Excess aluminum rods were

kept at the west side aircraft

rescue and firefighting tent

after the tent was erected in

2015/2016. These excess

beams disappeared without

any record of where they

went.

This was a Port Construction Services

(PCS) project. We

reviewed charges to

the project in PeopleSoft and contacted

the Manager of PCS

who was onsite

during the entire project.

The tent kit that was purchased

did not include additional

aluminum bars.

Employees were authorized

to take surplus wall lockers

home.

We interviewed fire department staff and

management.

The wall lockers were given

away to employees.

Policy AC-13 was not followed.

The value of the lockers was

minimal.

P-card purchases were not

properly made and accounted

for.

We judgmentally selected seven assets,

that were purchased with procurement

cards, and

posed a higher risk of

misappropriation or loss.

All seven assets were

accounted for.

Six aluminum tables were

removed from the fire

department for disposal but

were never received by the

Distribution Center.

We reviewed and noted that a disposition

form for three aluminum tables was filled

out,

but not uploaded to the SharePoint

site. The form listed the aluminum tables

as scrap, with no residual value.

However, the tables could have been

recycled or sent to auction.

The tables were not forwarded

to the Port’s Distribution

Center for proper surplus, and

Department staff were unable

to locate the tables during our

audit.

Policy AC-13 was not followed.

The recycle value of the tables

was minimal.

Seven ladders were donated

to Northwest Disaster Search

Dogs.

We contacted the organization and they

confirmed that only one old disassembled

ladder was donated in 2018. We

interviewed fire department staff, and

they verified that the Assistant Fire Chief

pulled out one ladder from the dumpster

at the

Port’s distribution center and

loaded it in his truck to donate to

Northwest Disaster Search Dogs.

One ladder was donated.

Policy AC-13 was not

followed.

The value of the disassembled

ladder was de minimis.

Equipment was donated to

Peru that might include

equipment purchased

through federal grant money.

We conducted multiple meetings with fire

department staff to get an understanding

of what was donated to Peru.

Only old and retired bunker

gear was donated.

Policy AC-13 was not

followed.

The value of the bunker gear

was de minimis.

1) Rating: Low

Equipment Acquisition, Monitoring and Disposal

Port Policy AC-13 provides guidance on the proper procedures to dispose of assets that no longer

serve a useful purpose for the Port. Additionally, the policy states that, “surplus property must NOT be

sold/transferred to any Port Commissioner or Port employee or to members of their immediate

families, unless specific approval of the Port Commission is obtained.”

Recommendations:

Going forward, the fire department should follow Port Policy AC-13 when disposing of equipment.

Disposition forms should be filled out, signed and uploaded to the SharePoint Site.

Management Response/Action Plan:

Beginning immediately the Fire Department will follow Port Policy AC-13 and fill out, sign, and upload

appropriate forms into the SharePoint Site regarding dispositioning, transferring, or surplus equipment.

Equipment Acquisition, Monitoring and Disposal

The fire department has an opportunity to enhance their tracking of small and attractive assets.

The existing processes were not adequate to assure that these assets were properly accounted

for, tagged, tracked, periodically reconciled, and disposed of per Port policy.

The Department’s system for monitoring assets was assigned to managers within each division (i.e. one

person was assigned to the monitoring of bunker gear). Individual department/divisions and their

respective managers were principally responsible for each asset from purchase to disposal.

Port Policy AC-14, “Small and Attractive Assets Policy” establishes expectations and provides guidance

regarding the inventorying, tracking and disposal of assets. Furthermore, Draft Port Policy EF-1 provides

further guidance as to what is a small and attractive asset. Policy AC-14 says:

“Each Port department must designate a custodian to be responsible for maintaining (additions and

deactivation) the small and attractive assets tracking database, tagging assets, and conducting periodic

physical inventories to verify assets existence.”

While the fire department has recently assigned an individual to be the custodian of small and attractive

assets in substance, the process is still decentralized, thereby creating an opportunity to enhance these

controls.

We selected 25 small and attractive assets from the Port’s asset management system, PeopleSoft. We

verified the existence of most of those assets, with a few exceptions. These exceptions were purchased

beyond our record retention period, and accordingly invoices for those assets were not available.

We also noted that disposition forms were rarely filled out and/or uploaded to the SharePoint site. Since

2016, the SharePoint site had only nine disposition forms, none of which were for the exceptions.

Additionally, we noted that neither the tool room or training supply room were properly secured to limit

access.

Recommendations:

1. As required by Port Policy AC-14, the fire department should designate a custodian to be responsible

for maintaining its small and attractive assets tracking database (additions and deactivations),

tagging assets and conducting annual physical inventories to verify the existence and proper

disposal of assets. The fire department should also leverage off the draft EF-1 & 2 policies as

needed.

2. The tool room and training supply room should be properly secured to limit access to only authorized

personnel.

Management Response/Action Plan:

Effective immediately, the Administration Team will take over the responsibility of “custodian” and will

be responsible for maintaining small and attractive assets database (additions and deactivations),

tagging of assets and coordinating annual physical inventories for accountability of assets and proper

disposal of such assets. Once EF-1 & 2 are released, the Fire Department will ensure system is

established and followed per these policies.

A database will be established for small & attractive assets by June 1, 2020. Once the database is

established existing assets will be loaded into the database and as new assets are acquired they will

be put into the database for monitoring and tracking.

2) Rating: Medium

Equipment Acquisition, Monitoring and Disposal

The tool room and training supply room will be secured with limited access by June 1, 2020.

Policies, procedures or guidance documents will be written in support of this process improvement and

comply with EF- 1 & 2 and will provide clear guidance for personnel regarding purchasing, accounting

for, and dispositioning of small and attractive assets.

Equipment Acquisition, Monitoring and Disposal

Appendix A: Risk Ratings

Findings identified during the audit are assigned a risk rating, as outlined in the table below. Only one

of the criteria needs to be met for a finding to be rated High, Medium, or Low. Findings rated Low will be

evaluated and may or may not be reflected in the final report.

Rating

Financial

Stewardship

Internal

Controls

Compliance Public

Commission/

Management

High Significant

Missing or not

followed

Non-compliance

with Laws, Port

Policies,

Contracts

High probability

for external audit

issues and / or

negative public

perception

Requires

immediate

attention

Medium Moderate

Partial controls

Not functioning

effectively

Partial

compliance with

Laws, Port

Policies

Contracts

Potential for

external audit

issues and / or

negative public

perception

Requires

attention

Low Minimal

Functioning as

intended but

could be

enhanced to

improve

efficiency

Mostly complies

with Laws, Port

Policies,

Contracts

Low probability

for external audit

issues and/or

negative public

perception

Does not

require

immediate

attention