Review of Report. Background

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2 Eugene Seroka, General Manager August 17, 2015 Page 2 of 4 Review of Report We provided a draft report to your Department on July 29, 2015, and the Department agreed with the findings and recommendations. The Action Plan submitted by your Department for implementing the audit recommendations is included as Appendix I of this report. Based on this Action Plan, we consider four recommendations (#1, #2, #3, and #4) to be Implemented and one (#5) to be In Progress. Background POLA is a premier gateway for international commerce, handling almost a quarter of all cargo that enters the United States each year. POLA has terminals for both passenger and cargo ships and warehouse facilities. POLA s three major sources of operating revenues are shipping, rental, and fees/royalties. It charges its occupants for the use of POLA s land, docks, wharves, transit sheds, terminals and other facilities based on various permit agreements. POLA also serves as a landlord to various oil terminals, fish markets, boat repair yards, railroads, restaurants and other similar operations. It recovers its costs of providing services and facility improvements through these charges. In 1995, the Board of Harbor Commissioners established a Chief Accountant Revolving Fund (Fund) at an authorized amount of $200,000. The purposes of the Fund were to provide advances for business-related travel expenses, direct payment of litigation or court-related costs, and for reimbursement of petty cash expenditures. Of the $200,000, POLA keeps $188,400 in a Wells Fargo bank account, while $11,600 in cash is distributed to three locations: $10,600 to the Cash Office, $500 to the Harbor Commission s Office, and $500 to the Construction and Maintenance Division. OBSERVATIONS We noted issues that POLA should address to strengthen controls to minimize the risk of loss over collections and to ensure efficient use of funds. Revolving Fund Authorized Amount Appears More Than Necessary We noted that for the period of July 2013 through March 2015, POLA disbursed only $12,300 from the $188,400 revolving fund that it maintains in the Wells Fargo bank account. This equates to annual expenses of only $7,030. Based on this level of activity, it would take decades to exhaust the $188,400, even if the Fund was never replenished. We also noted that for the same period, POLA disbursed an average of only $827 per month from the $11,600 petty cash funds in cash. This means that the total authorized petty cash currency amount represents about 14 months of expenses. As a general guideline, the authorized amount of a petty cash fund should be equal to about three months of expenses.

3 Eugene Seroka, General Manager August 17, 2015 Page 3 of 4 It appears that the amounts of the revolving fund in the bank and in petty cash currency are significantly more than what is necessary for operations. Maintaining a large volume of cash on hand presents increased risk since cash is highly susceptible to loss. Also, setting aside a large volume of unnecessary funds in a separate bank account for petty cash purposes is not an efficient use of City funds. 1. POLA management should re-assess the revolving fund held in the bank account and petty cash funds on hand with the goal of reducing the amounts to a more reasonable level based on need. Statement of Accountability One way to establish accountability over petty cash funds is by assigning a fund custodian, who signs an accountability form acknowledging that they are responsible for the funds. Section of the Controller Manual requires that a statement of responsibility that specifies the amount of the assigned fund or sub-assignment and the name of the assigned individual be on file in the Department s administrative office. Fund custodians who handle petty cash/change funds at POLA had no accountability forms on file. 2. POLA management should ensure that fund custodians sign an accountability form acknowledging responsibility and accountability for assigned funds. Controls Over Official Receipts The Cash Office (Cashier) receives payments from POLA customers for various fees and charges related to POLA s services such as dockage and pilotage, and rental of its facilities. The Cashier has no cash register and instead issues a manual Official Receipt (OR) to customers for payments received in the form of cash or checks. The Cashier also receives collections from the sale of $1 fare tickets from a POLA contractor that operates the POLA Waterfront Red Car Line (trolley). The trolley contractor provides the Cashier with a ticket count report with the trolley receipts in canisters every Thursday for receipts during the prior Friday, Saturday and Sunday, when the trolley operates. An armored truck picks up cash collections every Thursday, while the Cashier remotely deposits checks received via desktop deposit. With a collections transmittal, the Cashier forwards a copy of the ORs, deposit slip for the armored truck cash pick-up, deposit

4 Eugene Seroka, General Manager August 17, 2015 Page 4 of 4 confirmation for the desktop deposits, and other relevant documents such as customers invoices, to POLA s Accounts Receivable Section, for recording the collections. We noted the following: The Accounts Receivable (AR) Section did not record the OR # issued by the Cashier for each collection in the Receipt Register but rather assigned a different receipt # based on the type of payment received. For example, AR used the check number for check collections as the receipt # and the date of receipt for cash collections. According to the AR supervisor, their system was set up this way to facilitate tracking customer payments. However, by not recording the OR # issued by the Cashier for each corresponding collection, there is no tracking mechanism to ensure that all ORs issued and corresponding collections are accounted for, properly reported and recorded. POLA does not have periodic independent reconciliations of ORs issued to the Receipt Register and to daily bank deposits to ensure that all monies collected have been deposited. Without such a reconciliation by an individual independent from cashiering and accounts receivable functions, there is a risk that misappropriations could occur without detection. We noted that collection transmittals completed by the Cashier do not indicate corresponding OR #s. Including the OR #s on the transmittals would facilitate independent reconciliations between ORs issued and bank deposits. The Cashier does not assign a control number on collection transmittals sent to the AR Section but only indicates the date of collection. Without an assigned control number on the collection transmittals, it would be difficult to determine if there are missing collection transmittals that were not forwarded to the AR Section, especially if there are skipped dates of collections. s POLA management should: 3. Ensure that OR #s are recorded in the Receipt Register for proper tracking and monitoring of collections. 4. Require the cashier to indicate OR #s on collection transmittals, and assign a control number on collection transmittals sent to the Accounts Receivable Section. 5. Ensure there are periodic reconciliations, at least on a sample basis, between ORs issued and bank deposits to validate that collections are properly accounted for. The reconciliations should be performed by an individual independent from cashiering and accounts receivable functions.

5 Report Title: Results of Surprise Cash Counts & Bank Account Audit at the Port of Los Angeles APPENDIX 1 Report Issuance Date: Department responsible for Implementation: Harbor (Port of Los Angeles) Reported Status Date: August 4, 2015 Finding Number Summary Description of Finding Rec. No. Current Status DEPARTMENT REPORTED INFORMATION Basis for Status Target Date for Implementation POLA management should: 1 We noted that for the period of July 2013 through March 2015, POLA disbursed only $12,300 from the $188,400 revolving fund that it maintains in the Wells Fargo bank account. This equates to annual expenses of only $7,030. Also, POLA disbursed an average of only $827 per month from the $11,600 petty cash funds in cash. It appears that the amounts of the revolving fund in the bank and in petty cash currency are significantly more than what is necessary for operations. 1 Re-assess the revolving fund held in the bank account and petty cash funds on hand with the goal of reducing the amounts to a more reasonable level based on need. Th Port will re assess its funding needs annually to comply with this recommendation. However, at this time, the Port will maintain the current balance because of the possible needs for the funds on an emergency basis in cases of disaster such as the recent Pasha Fire and unforseen litigation settlement requiring immediate cash outlay. annual review 2 Fund custodians who handle petty cash/change funds at POLA had no accountability forms on file. 2 Ensure that fund custodians sign an accountability form acknowledging responsibility and accountability for assigned funds. I The accountability forms have been distributed to the custodians for signature, copies of which will be maintained by the Cash Office; As of Aug 3, all 4 custodians had signed accountability forms copies of which are filed with the Cashier's Office and Tresury Section. August 3, The Accounts Receivable (AR) Section did not record the OR # issued by the Cashier for each collection in the Receipt Register but rather assigned a different receipt # based on the type of payment received. 3 Ensure that OR #s are recorded in the Receipt Register for proper tracking and monitoring of collections. I The Cash Office has modifed the last column of the cash transmittal form to indicate the OR number. August 3, 2015 Page 1 of 2

6 Finding Number Summary Description of Finding Rec. No. Current Status DEPARTMENT REPORTED INFORMATION Basis for Status Target Date for Implementation 4 The Cashier does not assign a control number on collection transmittals sent to the AR Section but only indicates the date of collection. 4 Require the cashier to indicate OR #s on collection transmittals, and assign a control number on collection transmittals sent to the Accounts Receivable Section. I same as number 3 August 3, POLA does not have periodic independent reconciliations of ORs issued to the Receipt Register and to daily bank deposits to ensure that all monies collected have been deposited. 5 Ensure there are periodic reconciliations, at least on a sample basis, between ORs issued and bank deposits to validate that collections are properly accounted for. The reconciliations should be performed by an individual independent from cashiering and accounts receivable functions. This will be done by the Port's Debt and Treasury Section every end of the month starting the end of August 2015 August 31, 2015 I - Implemented PI - Partially Implemented or In Progress NI - Not Implemented D - Disagree Page 2 of 2