LAURA N CH1CK. CO'lTROLLf-:R

Transcription

1 '\. OC.FICE OF CO" 11-8LLER LAURA N CH1CK CO'lTROLLf-:R 200 N MAIN STREET, elm 300 LOS ANGELES 9001? (213) \N.lacity.org;'ctT September 21, 2007 Honorable Antonio R. Villaraigosa, Mayor Honorable Rockard J. Delgadillo, City Attorney Honorable Members of the City Council SUBJECT: REVIEW OF THE FISCAL YEAR INTERNAL CONTROL CERTIFICATION PROGRAM (ICCP) FOR THE LOS ANGELES WORLD AIRPORTS I am releasing the enclosed report entitled "Review of the Fiscal Year Internal Control Certification Program (ICCP) for the Los Angeles World Airports." A copy of this report was provided to the Department. If you have any questions or comments, please contact Farid Saffar, Director of Auditing, at (213) cz l!. ~ LAURA N. CHICK City Controller Enclosure SEP 2 I 2007 AUDITS & GOVERNMENTAL EFFICIENCY ~.G':0:: AN EQUAL. EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER (J '+lf

2 OFFICE OF CONTROLLER LAURA N. CHICK CONTROLl.ER 200 N. MAIN STRFF.i, RM 300 LOS ANGELES (213) 'NVV.lac:it.yorg/ctr Septernber 21, 2007 Ms. Gina Marie Lindsey, Executive Director Los Angeles World Airports #1 World Way Los Angeles, California Dear Ms. Lindsey: Enclosed is a report entitled "Review of the Fiscal Year Internal Control Certification Program (ICCP) for the Los Angeles World Airports." A draft of this report was provided to you on September 6, Comments provided by your Department on the September 12, 2007 rneeting were evaluated and considered prior to finalizing the report. Please review the final report and advise the Controller's Office by October 22, 2007 on planned actions you will take to implement these recommendations. If you have any questions or cornrnents, please contact me at (213) Sincerely, v h~lj:~il~ cf.ffarid SAFFAR, CPA Director of Auditing Enclosure cc: Robin Kramer, Chief of Staff, Office of the Mayor Jirnmy Blackman, Deputy Chief of Staff, Office of the Mayor Karen L. Sisson, City Administrative Officer Frank T. Martinez, City Clerk Gerry F. Miller, Chief Legislative Analyst Alan i. Rothenberg, President, Board of Airport Commissioners Independent City Auditors ::-t:,?;e, AN EQUAL EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER ~

3 .. City of Los Angeles Office of the Controller Review of the Fiscal Year Internal Control Certification Program (ICCP) for Los Angeles World Airports September 21, 2007 Laura N. Chick City Controller.

4 TABLE OF CONTENTS i. EXECUTIVE SUMMARy II. TABLEOFRECOMMENDATIONS III. AUDIT FINDINGS AND RECOMMENDATIONS Attachment I: Ranking of Recommendations

5 REVIEW OF THE FISCAL YEAR INTERNAL CONTROL CERTIFICATION PROGRAM (ICCP) FOR THE LOS ANGELES WORLD AIRPORTS EXECUTIVE SUMMARY The Audit Division has completed a review of the Los Angeles World Airports' (LAWA) Internal Control Certification Program (ICCP). The objective of the review was to evaluate LAWA's overall administration of the ICCP to determine whether the Department was effective in identifying all internal control weaknesses. Scope In performing our review, we interviewed LAWA management and staff to gain an understanding of LAWA's existing controls, observed procedures, and tested selected records. Our review was performed in accordance with Generally Accepted Government Auditing Standards and covered the period of July 2006 to April Based on our risk assessment, our review mainly covered the operations of Ontario and Van Nuys Airports and department-wide controls over receivables, warehouses, and equipment. Backqround Introduced in 1993, the ICCP is designed to help management ensure that their department's internal control structure is adequate and functioning as planned. Every three years, departments are required to self-evaluate their internal controls by completing a questionnaire for each of nine financial control areas: cash, revenues, expenditures, payroll, grants, warehouse inventory, capital assets, computer controls, and investments. Departments then prepare a corrective action plan to address each self-identified weakness. Summary Our audit indicates that LAWA management needs to provide closer oversight over the self-evaluation process to ensure that all reportable internal control weaknesses are identified and corrected. Our audit identified several internal control weaknesses that LAWA had not identified. Key findings include: D We noted serious internal control weaknesses over Van Nuys Fly Away (VNFA) ticket vending machine revenues that place LAWA at an unacceptable risk that improprieties could occur and remain undetected. Due to the laxness in controls, neither we nor LAWA could determine the 1

6 reason for a $12,700 shortage between the amount of sales recorded and collections deposited. In summary, we found that one individual empties the Ticket Vending Machines (TVMs), counts the collections, determines how much to set aside as a change fund, and makes the deposit No one independent of this individual attempts to reconcile ticket sales and collections to the amount deposited. Also, the VNFA Section was unable to show how they determine the deposit amounts. Van Nuys took immediate action to address the weaknesses we identified, which included implementing new procedures. If consistently followed, these new procedures will significantly improve internal controls over ticket vending machine revenues. It should be noted that LAWA's Internal Audit Section conducted an audit of the VNFA's FlyAway operations in 2005 which identified several of the same problems that our audit identified. However, the report was never finalized, although the Van Nuys Airport was provided with a draft report. If the Internal Audit Section had finalized the report or if the Van Nuys Airport acted on problems identified in the draft report, the serious internal control weaknesses could have been corrected before our audit o Ontario Airport does not have adequate controls over its decal revenue. Ontario Airport's Groundside Transportation Section issues/sells decals to businesses for vehicles to pick up passengers from the airport. Ontario generates revenue of approximately $270,000 per year from the decal sales. Ontario does not properly account for the inventory of decals and does not have controls in place to ensure that all collections have been deposited. o There are no independent reviews of filming permit revenue. In addition, fees are not charged in accordance with LAWA's Board Resolution and facility rates are not always updated. Collectively, the Airports receive approximately $800,000 in yearly filming permit revenue. LAWA does not have controls in place to verify that film permit revenue has been properly accounted for. Also, LAX does not require film permit customers to make a deposit of 120% of the estimated fees as required by LAWA's Board Resolution. Lastly, LAWA's facility rate usage charge has not been updated since

7 D Although the Department monitors delinquent accounts with large balances, there is little monitoring of smaller balances. On average, the Department has an accounts receivable balance of approximately $32 million. However, at the time of our audit, the Department had $53 million in outstanding accounts receivable, comprised of 499 accounts. The accounts receivable balance at the time of our audit was much higher than the average because LAWA bills most accounts during the first few months of each year which corresponded to the months of our audit Of the $53 million in accounts receivable, $8 million relates to 25 accounts that have been delinquent for more than 30 days. Although the Department monitors these outstanding accounts, there is $402,000 (184 accounts) in accounts delinquent more than 30 days where the Financial Division does not monitor the contract administrators' collection efforts to ensure contract administrators follow LAWA's guidelines regarding sending out delinquency notices, discontinuing future services, etc. LAWA also does not refer most delinquent accounts receivables of less than $5,000 to a collection agency as required by its collection guidelines. In total, LAWA wrote off $778,000 in receivables during the last three years. D LAX and Ontario Airports do not conduct physical inventories of materials and supplies. In addition, the Department does not conduct inventories of equipment items. According to inventory system records, LAX's warehouse contains items valued at $1.8 million, while Ontario's warehouse contains items valued at $235,000. Neither airport has conducted a physical inventory for at least five years to determine the accuracy of the systems' records. Also, the Department has not conducted an inventory of equipment items in over five years. These items have a cost of $85.5 million. These key findings, along with other findings, are detailed in the Findings and Recommendations Section of our report. Review of Report A draft report was provided to LAWA management on September 6,2007. We met with LAWA representatives on September 12, 2007 to discuss the contents of the report. The Department indicated concurrence with the findings and stated that it has already begun to implement many of the recommendations. We would like to thank LAWA management and staff for their cooperation and assistance during the audit. 3

8 TABLE OF RECOMMENDATIONS RECOMMENDATIONS PAGE REFERENCE LAWA management should: 1. Establish an official and properly authorized 8 change fund amount for TVM operations. 2. Assign at least two employees to empty and 9 replenish the TVMs and count the collections. 3. Require the Van Nuys FlyAway Section to 9 maintain records that clearly show how deposit amounts were determined and require someone independent of collection and depositing functions to reconcile sales records to cash collections and deposits. 4. Establish controls that ensure the accuracy of 9 reports prepared by the Van Nuys FlyAway Section. 5. Limit the number of employees with access to the 9 Van Nuys FlyAway Section's safes. 6. Require the Van Nuys FlyAway Section to 9 maintain a log of monthly passes received and issued/sold and ensure that someone independent of cashiering functions accounts for,, the monthly passes by ensuring that all monthly passes issued to the VNFA Section are either onhand or have been reported as revenue. 7. Establish controls to ensure that all audits 9 completed by its Internal Audit Section are finalized. 8. Require Groundside Transportation to issue 10 decals in sequential order and provide a receipt to customers. 4

9 RECOMMENDATIONS PAGE REFERENCE 9. Require Groundside Transportation to maintain a 10 log to keep track of decals received, issued/sold and on-hand and utilize the log to reconcile decals sold to deposit information. The reconciliation should be penormed by someone independent of cashiering operations. 10. Ensure that Groundside Transporttion 10 establishes accountability when cash custody is transferred to the Accounting Section. 11. Ensure that there is an independent filming permit revenues to verify revenues are properly accounted deposited. review of that the for and 12. Ensure it enforces its policy requlring advance 11 deposits for filming permits and ensure that, filming permit revenue is deposited in a timely manner. 13. Review facility rates on a regular basis to ensure 11 the rates recover pertinent costs. 14. Ensure that all delinquent accounts are followed 12 up and referred to a collection agency. 15. Assess penalties and interest on delinquent 12 accounts, unless prohibited by an existing contract. 16. Ensure that LAX and Ontario Airports conduct periodic physical inventories of their warehouses. The inventories should include a review of perpetual inventory records to identify slow moving, obsolete, and/or overstocked items. 17. Conduct biennial equipment items. physical inventories of I, 18. Ensure that proper documentation (e.g., a gas 14 card purchase log and corresponding receipts) exists to support gasoline card purchases

10 AUDIT FINDINGS AND RECOMMENDATIONS Finding #1: We noted serious internal control weaknesses over Van Nuys Fly Away ticket vending machine revenues that place LAWA at an unacceptable risk that improprieties could occur and remain undetected. Due to the laxness in controls, neither we nor LAWA could determine the reason for a $12,700 shortage between the amount of sales recorded and collections deposited. The Van Nuys FlyAway (VNFA) program is administered by the VNFA Section of the Van Nuys Airport. The program provides bus transportation, 24 hours a day and seven days a week, from Van Nuys Airport to LA and back. Patrons can purchase their FlyAway tickets at either a ticket booth or at one of four automated ticket vending machines (TVMs) located throughout the VNFA TerminaL. The round trip cost per ticket is $6 for adults and $4 for children and senior citizens. One way tickets are $3 for adults and $2 for children and senior citizens. A monthly pass can be purchased for $60. These passes can only be purchased at a ticket booth. According to LAWA's records it collects about $2,4 million a year in revenue from FlyAway ticket sales of which $400,000 is from TVM sales. In addition, Van Nuys collects about $3 million a year from its parking operations. In December 2003, LAWA contracted with Cubic Transportation Systems, Inc. (Cubic) to provide the TVMs, a computerized ticketing system which includes the four vending machines, fare gates, point of sale terminal registers, and a centralized computer system. Each TVM contains two coin hoppers which can hold up to 1,000 one-dollar coins each. The hoppers are equipped with a counter which starts at 1,000. Each time a coin is dispensed as change, the counter decreases by one. When the hopper is removed and another hopper is re-inserted into the machine, the counter resets to one thousand. The TVMs also contain a bill hopper to accept bills inserted into the machine. The TVM produces a total of how much money (by denomination) has been inserted into the machine since the last time the bill hopper was re-inserted into the machine. The counter resets to zero when the bill hopper is emptied and then re-inserted back into the machine. We noted serious internal control weaknesses over VNFA revenues related to TVM sales that place LAWA at an unacceptable risk that improprieties could occur and remain undetected. In summary, one individual empties the TVMs, counts the collections, determines how much to set aside as a change fund, and makes the deposit. No one independent of this individual attempts to reconcile ticket sales and collections to the amount deposited. Also, the VNFA Section was unable to show how they determine the deposit amounts. 6

11 It should be noted that LAWA's Internal Audit Section conducted an audit of VNFA's operations in 2005 and noted similar problems. The draft report was discussed with the Landside Management Division and Van Nuys Airport management, and their response was incorporated into the draft report. However, the report was not finalized by LAWA If the report had been finalized or if the Van Nuys Airport acted on problems identified in the draft report, the serious internal control weaknesses could have been corrected before our audit. Because of the serious internal control weaknesses, we compared total sales to amounts deposited for a one year period. We found that deposits were $12,723 less than recorded sales. Because of the poor internal controls, neither we nor LAWA could determine the reason for the discrepancy. Following are details of our findings with respect to the VNFA operations. ' Ticket Vending Machine Sales Safe / Chanqe Fund On April 26, 2007, we counted $12,650 in the safe. We were unable to determine how much should have been in the safe because the VNFA Section does not have a set dollar amount for its change fund. The VNFA day shift supervisor stated that she sets aside part of the TVM collections each week to be used as a change fund. The amount set aside varies each week, depending on how much she estimates will be needed to replenish the TVMs. According to the supervisor, the total change fund can be as high as $17,000. LAWA's Accounting Operations Division has not authorized VNFA's practice of withholding collections to be used for a change fund. Additionally, LAWA's Accounting Operations Division's records show that the authorized change fund is $5,000 for the entire FlyAway operations. However, all $5,000 is being used for the ticket booth. The VNFA Section does not maintain records of the amounts withheld from the collections. In addition, it does not maintain a log to account for the monies that should be in the safe. Consequently, if monies were taken from the safe without authorization, it would be difficult to determine how much was missing. It should be noted that at least four individuals have knowledge of the safe combination. Separation of Duties / Unverifiable Deposits Only one individual, the supervisor, is involved in emptying the TVMs, counting the collections, determining the amount to set aside as the change fund, and preparing the deposits. No one independent of this individual attempts to reconcile ticket sales and collections to the amount deposited to ensure that all revenues have been properly accounted for. Although LAWA's Accounting Operations Division reconciles deposit slips to bank statements, this reconciliation would only identify posting errors made by the bank. It would not identify any instances of "missing" monies 7

12 In reviewing the VNFA Section's deposit records, the VNFA could not demonstrate that all ticket sales had been deposited. Cubic provides the VNFA Section with a daily report showing the total ticket sales broken down by type of purchase (e.g., adult sales, child sales, etc.). However, the VNFA does not attempt to reconcile collections to this report. One reason the VNFA Section gave for not attempting a reconciliation is that the daily report shows collections from 12:01 a.m. through 11 :59 p.m. Since the machines are usually emptied around mid-morning, there would not be a 100% match. We requested Cubic, through the VNFA Section, to provide reports showing sales data. For the period April 30, 2006 through April 26, 2007, we compared total sales to the total amount deposited. We found that total sales exceeded total deposits by $12,723. Accuracy of Reports Each day, the VNFA Section obtains a Cubic report showing total sales broken down by machine number and type of sale (e.g. adult one-way, adult round trip, etc.). This information is then entered into a weekly spreadsheet, which includes a weekly total. The spreadsheets are then provided to Van Nuys Airport management The daily Cubic reports are discarded once the information has been entered into the spreadsheet We noted that the spreadsheets contain an incorrect formula which results in the weekly total showing only six days of sales for the TVMs. We also noted that the spreadsheets showed zero sales each day from August 1, 2006 through September 30, 2006 for machine # However, according to the reports we received from Cubic (discussed above), this machine had total sales of $7,334 during this period. )- Booth Sales The VNFA Section does not maintain records to show that monthly passes have been properly accounted for. For example, the VNFA Section does not maintain a log book to record monthly passes received and sold. In addition, no one independent of cashiering functions attempts to account for the monthly passes by ensuring that all monthly passes issued to the VNFA Section are either on-hand or have been reported as revenue. The VNFA Section uses another safe, separate from the safe used for TVM sales, to store the change fund and collections waiting to be deposited. Nine individuals - eight cashiers and the manager - have access to the safe, which on the day of our cash count (April 26, 2007) contained over $15,000. Recommendations LAWA management should: 1. Establish an offcial and properly authorized change fund amount for TVM operations. 8

13 2. Assign at least two employees to empty and replenish the TVMs and count the collections. 3. Require the Van Nuys FlyAway Section to maintain records that clearly show how deposit amounts were determined and require someone independent of collection and depositing functions to reconcile sales records to cash collections and deposits. 4. Establish controls that ensure the accuracy of reports prepared by the Van Nuys FlyAway Section. 5. Limit the number of employees with access to the Van Nuys FlyAway Section's safes. 6. Require the Van Nuys FlyAway Section to maintain a log of monthly passes received and issued/sold and ensure that someone independent of cashiering functions accounts for the monthly passes by ensuring that all monthly passes issued to the VNFA Section are either on-hand or have been reported as revenue. 7. Establish controls to ensure that all audits completed by its Internal Audit Section are finalized. Finding #2: Ontario Airport does not have adequate controls over its decal revenue. Ontario Airport's Groundside Transportation Section issues/sells decals to businesses for vehicles to pick up passengers from the airport (e.g., transportation companies, offairport parking transportation, and hotel/motel shuttles). The decal is valid for six months and there are 500 available decals for each six month period. The cost for a decal ranges from $211 to $2,993, depending on the purpose for the decal, as well as the type of transportation vehicle. Between July 1, 2006 and May 31, 2007, Ontario sold 518 decals and generated $248,365 in revenue. At the time of our review, we counted 1,200 decals in Ontario's locked safe. However, because the airport does not maintain a log to record the number of decals received from the vendor, Ontario was not able to show whether all decals that should have been on-hand were in the safe. We also found that Groundside Transportation does not always issue decals in sequential order. For instance, numbers #3702 to #3999 were issued between June 6, 2006 and April 2, However, numbers #3500 to #3700 were still in the safe as of April 2, Issuing the decals in sequence helps facilitate a reconciliation between sales and deposits and reduces the risk of improprieties occurring and remaining 9

14 undetected. This risk could also be reduced if Groundside Transportation issued receipts to customers. Groundside Transportation makes deposits only weekly. On a weekly basis, Groundside Transportation forwards collections to the Accounting Section to make the deposit. Groundside Transportation does not prepare a check summary to account for the monies forwarded to the Accounting Section and there is no independent reconciliation performed to ensure that all collections have been deposited. Recommendations LAWA management should: 8. Require Groundside Transportation to issue decals in sequential order and provide a receipt to customers. 9. Require Groundside Transportation to maintain a log to keep track of decals received, issued/sold and on-hand and utilize the log to reconcile decals sold to deposit information. The reconciliation should be performed by someone independent of cashiering operations. 10. Ensure that Groundside Transportation establishes accountability when cash custody is transferred to the Accounting Section. Finding #3: There are no independent reviews of filming permit revenue. In addition, fees are not charged in accordance with LAWA's Board Resolution and facility rates are not always updated. LAWA issues filming permits to production companies and to individuals which allows them to film at the LA, Ontario, Van Nuys, and Palmdale airports. The permit holders pay a facility/location usage charge and for the cost of any necessary airport personnel. Collectively, the airports receive approximately $800,000 in yearly filming permit revenue. Review of filminq permit revenue Each coordinator at LA, Ontario, and Van Nuys handles all aspects of the film permit process including interacting with customers interested in filming, preparing the preliminary billing, accepting deposit checks, preparing the final invoice, accepting the final payment and maintaining film permit records. There is no independent review of the film permit activities to verify that film permit revenue has been properly accounted for. Currently, Ontario and Van Nuys do not maintain sufficient records to facilitate a review of the permit activities. For example, these facilities do not maintain logs to record 10

15 permits issued and revenues received. Obtaining this information would be time consuming and would require a review of each individual customer's files. Charqinq of Fees LAWA Board Resolution #18978 (No.9) requires film permittees to make an advance deposit of 120% of the estimated charges. The Resolution indicates that LAWA will refund excess deposits upon completion of the billing process. Although Ontario and Van Nuys airports require the 120% deposits, the monies received are not deposited with the bank. Instead, the film coordinator "holds" the check and returns it to the customer when the final check payment has been received. Based on a sample of 21 advance deposits, the checks are held an average of three weeks with one check being held for three months. LAX does not require film permit customers to make the 120% deposit LA bills the customers after the filming has been completed. LAX receives approximately $325,000 a year in film permit revenue, and its outstanding receivables as of December 31, 2006 were $52,000 for accounts billed in 2005 and Accounts receivable would be minimized if LAX collected the 120% deposit Updatinq Rates LAWA has not updated the facility rate usage charge since November 1994 when Board Resolution #18978 was adopted. Our review of a small number of invoices showed that an average of 23% of total filming fees are for facility charges. Recommendations LAWA management should: 11. Ensure that there is an independent review of filming permit revenues to verify that the revenues are properly accounted for and deposited. 12. Ensure it enforces its policy requiring advance deposits for filming permits and ensure that filming permit revenue is deposited in a timely manner. 13. Review facility rates on a regular basis to ensure the rates recover pertinent costs. 11

16 Finding #4: Although the Department monitors delinquent accounts with large balances, there is little monitoring of smaller balances. On average, the Department has an accounts receivable balance of approximately $32 million. However, at the time of our audit, the Department had $53 million in outstanding accounts receivable, comprised of 499 accounts. The accounts receivable balance at the time of our audit was much higher than the average because LAWA bills most accounts during the first few months of each year which corresponded to the months of our audit Of the $53 million in accounts receivable, $8 million relates to 25 accounts that have been delinquent for more than 30 days. Contract administrators receive an Accounts Receivable Aging Report and are responsible for collecting accounts for their area of responsibility. Contract administrators and Accounting Operations Division representatives meet monthly to discuss collection efforts and strategies for the Top 25 accounts. However, the Accounting Operations Division does not monitor the contract administrators' collection efforts for other delinquent accounts (184 accounts totaling $402,000 more than 30 days delinquent) to ensure contract administrators follow LAWA's guidelines regarding sending out delinquency notices, discontinuing future services, etc. LAWA also does not refer most delinquent accounts receivables of less than $5,000 to a collection agency as required by its collection guidelines In total, LAWA wrote off $778,000 in receivables during the last three years. Section of the Controller's User Department Manual requires that accounts receivable be monitored frequently to identify delinquent accounts and appropriate follow-up procedures are initiated (send notice of delinquent account, discontinue rendering future services, etc.) We also noted that LAWA does not assess penalties and interest unless provided for in the contract The Department also receives several collections that are not covered by a contract such as movie filming fees and non-scheduled landing fees. Consequently, delinquent customers for these services are not assessed penalties or interest Recommendations LAWA management should: 14. Ensure that all delinquent accounts are followed up and referred to a collection agency. 15. Assess penalties and interest on delinquent accounts, unless prohibited by an existing contract. 12

17 Finding #5: LAX and Ontario Airports do not conduct physical inventories of materials and supplies. The LAX and Ontario airports maintain warehouses to stock construction materials and supplies. According to inventory system records, LA's warehouse contains 3,161 items valued at $1.8 million, while Ontario's warehouse contains 1,913 items valued at $235,000. Neither airport has conducted a physical inventory for at least five years to determine the accuracy of the systems' records. Periodic physical inventories conducted by an individual(s) who is independent of supply, procurement, and inventory responsibilities would identify any inventory discrepancies. Good internal controls also dictate that departments periodically review their perpetual inventory records to identify slow moving, obsolete, and/or overstocked items. Neither LAX nor Ontario performs any such reviews. Recommendation 16. LAWA management should ensure that LAX and Ontario Airport conduct periodic physical inventories of their warehouses. The inventories should include a review of perpetual inventory records to identify slow moving, obsolete, and/or overstocked items. Finding #6: LAWA does not conduct physical inventories of equipment items. LAWA's capital asset inventory records reflect $85.5 million in equipment items (at cost). The Department has not conducted an inventory of these items (construction equipment, security equipment, telecommunication equipment, etc.) in at least five years to verify their existence. The Controller's User Manual Section 2.41 requires departments to conduct biennial inventories of all equipment items at all departmental locations to verify the correctness of the inventory records We also noted that LA has a storage area for information technology (IT) equipment such as new and used computers, cables, and telephones. There is no inventory listing to account for this equipment, which is estimated to have a value of more than $1 million In addition, LA and Ontario do not maintain a complete listing to account for computer equipment being used by employees (e.g., computers at employees' desks). Recommendation 17. LAWA management should conduct biennial physical inventories of equipment items. 13

18 Finding #7 - Payments on gasoline card purchases are processed without required supporting documents. LAWA's gas card policies and procedures require gas card holders to submit a Gas Card Purchase Log for the previous month which itemizes all card purchases. The Gas Card Purchase Log must be signed by the card holder, authorized and signed by the supervisor, and have original receipts attached. If no gas is purchased during the month, the card holder must still submit a Gas Card Purchase Log indicating that no purchases were made. The Ontario Airport Manager submitted copies of gas receipts which were attached to the monthly gas statements. However, he did not submit a signed Gas Card Purchase Log to certify the validity of the expenses Recommendation 18. LAWA management should ensure that proper documentation (e.g., a gas card purchase log and corresponding receipts) exists to support gasoline card purchases. ~~ Respectfully submitted, ~ c? -.. Brenda B. Barit Internal Auditor Mike Lee, CPA, CIA Chief Auditor ~~'? 0- ~. Ricky Deguchi, CP,CIA, CISA Chief iniernai Âudiior I llcf: F arid Saffar, C Director of Auditing July 10,

19 REVIEW OF THE FISCAL YEAR Attachment I OFFICE OF THE CONTROLLER INTERNAL CONTROL CERTIFICATION PROGRAM (ICCP) FOR THE LOS ANGELES WORLD AIRPORTS Ranking of Recommendations Finding Description of Finding Ranking Recommendations Number Code i LAWA management should: 1. We noted serious internal control 1. Establish an official and properly : U weaknesses over Van Nuys Fly authorized change fund amou nt for Away ticket vending machine TVM operations. revenues that place LAWA at an, unacceptable risk that U 2 Assign at least two employees to improprieties could occur and empty q and replenish y y the TVMs yand remain undetected. Due to the count the collections. laxness in controls, neither we nor LAWA could determine the u 3. Re uire the Van Nu s FI Awa Section to maintain records that clearly, reason for a $12,700 shortage between the amount of sales recorded and collections deposited. show how deposit amounts were determined and require someone independent of collection and depositing functions to reconcile sales records to cash collections and deposits. U 4. Establish controls that ensure the accuracy of reports prepared by the Van Nuys FlyAway Section. N 5 Limit the number of employees with access to the Van Nuys FlyAway Section's safes. U 6. Require the Van Nuys FlyAway' Section to maintain a log of monthly passes received and issued/sold and ensure that someone independent of cashiering functions accounts for the...i.i"...,.,. h"..."..;... +i IIIUIILlIIY tjgl~~c:-= uy ;11;;UIILI~ lllcil aii monthly passes issued to the VNFA Section are either on-hand or have been reported as revenue. I N 7. Establish controls to ensure that all audits completed by its Internal Audit 15

20 2. Ontario Airport does not have adequate controls over its decal revenue. N Section are finalized. 8. Require Groundside Transportation to issue decals in sequential order and provide a receipt to customers. N 9. Require Groundside Transportation to maintain a log to keep track of decals received, issued/sold and on-hand and utilize the log to reconcile decals sold : to deposit information. The reconciliation should be performed by someone independent of cashiering operations. N 10. Ensure that Groundside Transportation establishes accountability when cash custody is transferred to the Accounting Section. 3. There are no independent reviews of filming permit revenue. In addition, fees are not charged in accordance with LAWA's Board Resolution and facility rates are not always updated. u u 11. Ensure that there is an independent. review of filming permit revenues to verify that the revenues are properly accounted for and deposited. 12. Ensure it enforces its policy requiring advance deposits for filming permits i and ensure that filming permit revenue is deposited in a timely manner. N 13. Review facility rates on a regular basis to ensure the rates recover pertinent costs. 4. Although the Department, monitors delinquent accounts with large balances, there is little monitoring of smaller balances. 5. LAX and Ontario Airports do not conduct physical inventories of, materials and supplies. N 14. Ensure that all delinquent accounts are followed up and referred to a collection agency. N 15. Assess penalties and interest on delinquent accounts, unless prohibited by an existing contract N 16. Ensure that LAX and Ontario Airports conduct periodic physical inventories of their warehouses. The inventories should include a review of perpetual inventory records to identify slow i moving, obsolete, and/or overstocked items. 6. LAWA does not conduct physical inventories of equipment items. N 17. Conduct biennial physical inventories of equipment items. 7. Payments on gasoline card N

21 I purchases are processed without' required supporting documents. corresponding receipts) exists to support gasoline card purchases.,! Description of Recommendation RankinQ Codes U - Urgent - The recommendation pertains to a serious or materially significant audit finding or control weaknesses. Due to the seriousness or significance of the matter, immediate management attention and appropriate corrective action is warranted. N - Necessary - The recommendation pertains to a moderately significant or potentially serious audit finding or control weakness Reasonably prompt corrective action should be taken by management to address the matter. The recommendation should be implemented within six months. D - Desirable - The recommendation pertains to an audit finding or control weakness of relatively minor significance or concern. The timing of any corrective action is left to management's discretion. N/A - Not Applicable 17