INTERNAL AUDIT REPORT

Operational Audit

Fishermen’s Terminal

January 2022 – December 2022

Issue Date: March 20, 2023

Report No. 2023-03

Fishermen’s Terminal

TABLE OF CONTENTS

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

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

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

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

Appendix A: Risk Ratings ........................................................................................................................... 9

Fishermen’s Terminal

Executive Summary

Internal Audit (IA) completed an audit of Fishermen’s Terminal for the period January 2022

through December 2022. The audit was performed to evaluate billing processes, to evaluate

segregation of duties, and to assess internal controls, including whether standard operating

procedures were drafted and followed. The audit did not include PeopleSoft Financials.

This audit was requested by Maritime Management to assist them in evaluating if certain

processes were being followed. Specifically requested was our assessment to determine if

revenue billing was complete and accurate.

We concluded that billing of moorage and berthage was accurate and complete. However, errors

were identified in revenue of auxiliary services, and we concluded that billing and collection

processes need to be more holistically understood, documented, and followed. During our audit,

roles and responsibilities were sometimes indistinct, making it unclear who is overseeing and

responsible for its accuracy.

As part of our audit, we performed a walkthrough of Fishermen’s Terminal, Salmon Bay Marina

and any associated properties at the location. We noted the aging infrastructure at Salmon Bay

Marina (SaBM), the net sheds at Fishermen’s Terminal, and at the building that is slated to

become the Maritime Innovation Center. Of particular concern was the roof at SaBM, which is at

risk of structural failure. We reviewed an engineer’s assessment report, requested by Maritime

Management, that identified “significant risks of structural instability” and “notable risk of

fire” due to the lack of a sprinkler system. The cost to repair the existing structure was estimated

at $1.3 million, removal of the roof was $2.8 million, while a total roof replacement was estimated

at $13.5 million. Regardless of which alternative is chosen, the report highlights safety concerns,

which if left unaddressed, could result in property damage, loss of life, and to a lesser extent,

reputational harm.

Port Management was varied in their support of the initial purchase of SaBM. On December 5,

2017, Port Commission approved the purchase with a vote of four to one for $15,679,120. As a

municipal corporation that contributes to economic development in Seattle, SaBM adds to the

existing portfolio of marinas owned and operated by the Port.

One medium rated issue is listed below and discussed in more detail, beginning on page six of

this report.

1. (Medium) - Billing and collection procedures at Fishermen’s Terminal were informal and

internal controls needed to be strengthened. We identified underbilling of revenue and a sizable

accounts receivables balance primarily managed by one individual.

Glenn Fernandes, CPA

Director, Internal Audit

Responsible Management Team

Stephanie Jones-Stebbins, Managing Director Maritime

Kenny Lyles, Director Maritime Operations and Security

Fishermen’s Terminal

Background

Fishermen’s Terminal

Fishermen’s Terminal opened in 1914 and serves as the home port for Seattle’s commercial

fishing fleet. In 2002, it began accepting non-commercial pleasure craft. Today, it serves more

than 700 vessels and provides short-term and long-term freshwater mooring for both fishing and

commercial vessels, as well as pleasure crafts. The facility also includes 227,000 square feet of

office, retail, restaurant, and warehouse space. Reflected below is revenue for the last three

years:

Salmon Bay Marina

Salmon Bay Marina offers covered and uncovered freshwater monthly moorage for recreational

boats. It is located just inside the Ballard Locks, next to the Ballard Bridge. Various services such

as restrooms, laundry facilities, storage and lockers, parking, access to electrical outlets, and

water/ garbage disposal, are available for customers. The facility is open all year-round with staff

available 24 hours a day, 7 days a week, and is walking distance to restaurants and shops at

Fishermen’s Terminal. Reflected below is revenue for the last three years:

Maritime Industrial Center

The Maritime Industrial Center offers short-term and daily moorage for vessels up to 250 feet

(76m) in length. It is located in freshwater, just inside the Ballard Locks. The center has over 1,500

linear feet of concrete dock space for loading and repair/ maintenance work. Shore power, potable

water, phone service, and waste / recycling services are available to customers as well. The

center is managed by Fishermen’s Terminal with staff available 24 hours a day, 7 days a week.

Revenue Source 2020 2021 2022

Berthage and Moorage $2,175,639 $2,175,067 $2,358,758

Concession Services 657,232 614,430 663,961

Space Rental 148,541 107,867 120,390

Utility Sales Revenue 88,596 144,947 128,817

Other Equipment Rental 34,571 38,253 33,551

Maintenance Service Fees 11,028 16,003 12,516

Other Services Revenue 63,781 67,014 67,544

$3,179,388 $3,163,581 $3,385,537

Revenue Source 2020 2021 2022

Berthage and Moorage $831,065 $871,038 $934,283

Concession Services 6,728 6,888 7,003

Utility Sales Revenue 28,351 28,236 30,692

Other Services Revenue 6,251 6,756 6,643

$872,395 $912,918 $978,621

Revenue Source 2020 2021 2022

Berthage and Moorage 188,424 118,516 100,983

Space Rental 37,641 28,438 39,003

Other Equipment Rental 2,391 911 1,606

Other Services Revenue 9,964 10,323 10,164

$238,420 $158,188 $151,756

Fishermen’s Terminal

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.

In some cases, we used a judgmental method to determine the samples selected for our audit

test work. The results of this work cannot be projected to the full population as we did not select

a statistical based random sample.

The period audited was January 2022 through December 2022 and included the following

procedures:

Billing Processes:

• Conducted inquiries and performed walkthroughs to gain an understanding of the billing

process.

• Reviewed customer payments within the Marina Management System (MMS) and

recalculated those, for accuracy.

• Obtained material agreements and contracts to assure that amounts are being billed

appropriately and correctly.

Standard Operating Procedures:

• Obtained and reviewed Standard Operating Procedures available, to assure that

established and standardized processes exist and are being followed / implemented.

Internal Controls:

• Conducted inquiries and performed walkthroughs with key employees to gain an overall

understanding of internal controls present.

• Obtained the User Account Review report for MMS and reviewed user roles and access

for employees, verifying appropriateness.

Segregation of Duties:

• Conducted inquiries and performed walkthroughs with key employees to gain an

understanding of the business’ operations.

Fishermen’s Terminal

Schedule of Findings and Recommendations

Billing and collection procedures at Fishermen’s Terminal were informal and internal

controls needed to be strengthened. We identified underbilling of revenue and a sizable

accounts receivables balance primarily managed by one individual.

Billing

Billing adjustments can be made in MMS by multiple people unilaterally, requiring no formal

approval. A fundamental internal control principle requires that someone other than the individual

who entered the adjustment, usually the person’s manager, review and release the adjustment.

This way, errors or internal fraud, can be identified and prevented.

For example, our testing identified approximately $3,800 of underbilled revenue related to

auxiliary services. We tested five transactions for space rental and three had been billed using

outdated rates. The revenue billed for this service for the year 2022 was $116,013.92. Applying

the exception rate from our testing, an estimated $36,500 was underbilled for the year 2022.

Management also identified that the rate billed for use of the Nordby conference room was not

accurate. Rather, an outdated rate on the Fishermen’s Terminal website was incorrectly used. As

a result, in 2022, management estimated approximately $1,700 was underbilled.

These two examples highlight the need to have a formal and established review process over

billing. A formal review process is an internal control that could have identified and prevented the

errors.

Collection

The outstanding balance of accounts receivables at FT and Salmon Bay Marina as of January

31, 2023, was approximately $900,000 and represents about 600 customer accounts (see Table

I below). Of the $900,000 outstanding, about $263,000 has been outstanding for over 120 days.

The collections process, however, is primarily managed by only one person. With only one

individual performing this function, the operations are more susceptible to continuity risks, should

the person leave their position.

While delinquencies are not uncommon, this person can also delete billing records in MMS

without detection, further compounding the risks within the business. Employees who collect cash

from customers should not also be able to delete customer billings.

Table I

Current 1-30 31-60 61-90 91-120 over 120 Total

Fishermen's Terminal 337,638$ 90,586$ 58,315$ 29,632$ 25,181$ 254,688$ 796,040$

Salmon Bay Marina 74,154 10,405 5,112 3,413 2,380 8,760 104,224

Total 411,792$ 100,991$ 63,427$ 33,045$ 27,561$ 263,448$ 900,264$

Days Past Due

1) Rating: Medium

Fishermen’s Terminal

Recommendations:

Billing and collection processes should be documented and include management reviews so that

oversight is well understood and required. They should also include who performs the review,

when it is conducted, and what is reviewed.

We also recommend evaluating permissions and access within MMS so that individuals can’t

delete or adjust charges to customer accounts.

Management Response/Action Plan:

This memo represents the Management Response/Action Plan to the 2023 Commercial Fishing

Internal Audit. The Maritime department that oversees the commercial fishing business unit,

Maritime Operations and Security, requested the Internal Audit to review business practices used

in the management of Fishermen’s Terminal, (F.T.); Salmon Bay Marina, (SaBM); and the

Maritime Industrial Center, (MIC).

In November of 2021, a new Sr. Manager of commercial fishing was hired to lead the business

group. With the change in management in place after one year, the Director of Operations &

Security felt a review of practices was timely.

Maritime Operations & Security accepts the findings of the 2023 Internal Audit, as well as the

associated recommendations. Based on these recommendations, Commercial Fishing will work

to create a structure that will accomplish a separation of duties to ensure integrity in the revenue

management program.

Areas identified in the revenue management program warranting structural enhancement are

Billing and Collection procedures. Currently, the program is informal and needs to be

strengthened. This has resulted in underbilling and a sizable accounts receivables balance.

Currently, these programs are managed by one individual, the business and operations

manager.

In 2002, the Seaport Division, (the precursor to the Maritime Division), reorganized, eliminating

a business manager position by one FTE or Full Time Equivalent. Since that time, one business

manager has been responsible for managing billing and collections. The resulting reduction in

financial oversight can be attributed to approximately $230,000 for overdue accounts of 120

days or more, YTD. To compound this exposure, should the business manager position be

vacated, records of customer collection management would be susceptible to loss.

With the desire to competently manage revenue and accounts receivable, commercial fishing

management will work to design a structure that will achieve the recommended “separation of

duties”. Management is evaluating whether an additional position is needed or can be

accommodated with existing staff, to provide separation of customer intake, (assigning

moorage), and billing, to provide revenue management accountability. This position will also

provide the same separation of duties for the billing and collection management program

associated with the financial management process.

Processes will also be brought up to date by automating customer engagement tracking for the

collections process, as well as the incorporation and utilization of “Dashboards” for reporting

and information retention, and the soon to be completed Marine Vessel Management System or

“MVMS”, platform currently in the final stages of development by internal ICT developers. (The

Fishermen’s Terminal

original launching of the MVMS system was delayed over a year as a result of circumstances

beyond the control of the ICT design and development team. Current schedule for launching

MVMS is early Spring, 2023). These automated tools will provide a more reliable system of

customer assignment, revenue, billing and collections management.

Finally, the Maritime Division will launch the 2024 Capital program budget process this Spring.

In preparation of the capital budget project funding allocations and schedules, the SaBM Roof

program is scheduled to be in the review. The condition assessment and planning process

concluded for the roof at SaBM this past November and is ready for Capital Review funding

assignment.

DUE DATE: 03/31/2024

Fishermen’s Terminal

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

Moderate

probability for

external audit

issues and / or

negative public

perception

Requires

attention

Low

Minimal

Functioning as

intended but

could be

enhanced

Mostly complies

with Laws, Port

Policies,

Contracts

Low probability

for external audit

issues and/or

negative public

perception

Does not

require

immediate

attention