[Audit Report on Billing and Collection Functions, Virgin
Islands Port Authority, Government of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 01-I-303
Title: Audit Report on Billing and Collection Functions, Virgin
Islands Port Authority, Government of the Virgin Islands
Date: March 30, 2001
**********DISCLAIMER**********
This file contains an ASCII representation of an OIG report. No attempt has been made to display graphic images or illustrations. Some tables may be included, but may not resemble those in the printed version. A printed copy of this report may be obtained by referring to the PDF file or by calling the Office of Inspector General, Division of Acquisition and Management Operations at (202) 219-3841.
******************************
V-IN-VIS-003-00-M
Mr. Gordon Finch
Executive Director
Virgin Islands Port Authority
Cyril E. King Airport
Charlotte Amalie, Virgin Islands 00802
Subject: Audit Report on Billing and Collection Functions, Virgin Islands Port Authority, Government of the Virgin Islands (No. 01-I-303)
Dear Mr. Finch:
This report presents the results of our audit of the billing and collection functions of the Virgin Islands Port Authority.
Section 5(a) of the Inspector General Act (5 U.S.C. app. 3) requires the Office of Inspector General to list this report in its semiannual report to the U.S. Congress. In addition, the Office of Inspector General provides audit reports to the Congress.
Please provide a response to this report by May 18, 2001. The response should provide the information requested in Appendix 4 and should be addressed to our Caribbean Regional Office, Federal Building - Room 207, Charlotte Amalie, Virgin Islands 00802.
Sincerely,
Roger La Rouche
Assistant Inspector General
for Audits
cc: Honorable Charles W. Turnbull, Governor of the Virgin Islands
EXECUTIVE SUMMARY
BACKGROUND
The Virgin Islands Port Authority is an autonomous agency of the Government of the Virgin Islands that manages the territory's municipal aviation and marine facilities and certain other real properties which were transferred to it by the Federal Government. The Port Authority's operations are subject to laws contained in the Virgin Islands Code and, with respect to airport properties, regulations of the Federal Aviation Administration contained in the Code of Federal Regulations. The audited financial statements of the Port Authority reported that it generated gross revenues of $36.1 million in fiscal year 1998 and $36.8 million in fiscal year 1999, primarily from the assessment of user fees and rental charges at its aviation and marine facilities. However, the Port Authority suffered a net loss of $246,000 for fiscal year 1998 and had net income of $663,000 for fiscal year 1999.
OBJECTIVE
The objective of the audit was to determine whether the Port Authority (1) managed property and facilities to maximize rental and concession revenues; (2) accurately assessed and promptly collected amounts owed by tenants, concessionaires, and other users of Port Authority facilities; and (3) controlled cash collections effectively.
RESULTS IN BRIEF
The Port Authority needs to improve controls over lease management, the collection of delinquent accounts receivable, and the collection and deposit of parking lot fees. Specifically:
- The Port Authority did not always obtain copies of sublease agreements entered into by its tenants or collect the sublease fees that the tenants were required to pay in accordance with their lease agreements. As a result, sublease revenues totaling about $10,600 were not realized for fiscal years 1998, 1999, and 2000. In addition, lease agreements were not always properly executed, tenants did not always maintain required liability insurance coverage, rental increases were not always timely implemented, and quarterly site inspections were not conducted by the Port Authority's Property Management Officers.
- The Port Authority did not effectively carry out collection enforcement activities on delinquent accounts and, as of April 2000, had 87 accounts totaling about $1.17 million that were delinquent more than 90 days. In addition, in December 1998 and February 2000, the Port Authority's Board of Directors approved the write-off of 31 delinquent accounts totaling $909,562 because the accounts were classified as uncollectible.
- The Port Authority lacked assurance that all parking fees were collected and deposited. The machines that stamped the date and time onto tickets did not work at exit points at the St. Thomas and St. Croix airports; attendants at the airport on St. Thomas collected parking tickets and fees, prepared deposit slips, and deposited the funds; and attendants at the airport on St. Croix did not prepare any record of funds collected. We estimated that, on a daily basis, at the St. Thomas airport about 1,250 parking tickets were issued but on the average only 315 tickets yielded cash collections. Although it is reasonable for many tickets to be non-fee-generating, such as those for taxicabs and short-term parkers, we could not verify the accuracy of the collections because appropriate records were not maintained.
RECOMMENDATIONS
We made 11 recommendations to the Virgin Islands Port Authority to address the internal control weaknesses disclosed by the audit.
AUDITEE COMMENTS
AND OFFICE OF
INSPECTOR GENERAL
EVALUATION
The Executive Director of the Port Authority concurred with all 11 recommendations and indicated that corrective actions had been or would be taken. Based on the response, we consider one recommendation implemented and two recommendations resolved but not implemented. We requested additional information for the eight remaining recommendations.
INTRODUCTION
BACKGROUND
The Virgin Islands Port Authority is an autonomous agency of the Government of the Virgin Islands that manages the territory's municipal aviation and marine facilities and certain other real properties which were transferred to it by the Federal Government. The Port Authority was established in 1968 by Act. No. 2375 and is governed by a 9-member Board of Directors. The day-to-day operations of the Port Authority are headed by an Executive Director, who is appointed by the Board. The Port Authority has the power to acquire property and to construct, develop, improve, operate, and manage properties under its control.
The Port Authority's operations are subject to laws contained in the Virgin Islands Code (29 V.I.C. Chapter 10) and, with respect to airport properties, regulations of the Federal Aviation Administration contained in the Code of Federal Regulations (14 CFR Part 16). Among other provisions, these laws and regulations require the Port Authority to charge service and concession fees and rental rates that fully compensate it for the use of its facilities. Accordingly, the Port Authority levies a variety of fees for access to its aviation and marine facilities and for the use of its properties. The Port Authority also has a statutory responsibility to encourage the widest possible diversity of use for its facilities consistent with sound fiscal management.
The Port Authority's audited financial statements reported that it generated gross revenues of $36.1 million in fiscal year 1998 and $36.8 million in fiscal year 1999, primarily from the assessment of user fees and rental charges at its aviation and marine facilities. However, the Port Authority incurred a net loss of $246,000 for fiscal year 1998 and had net income of $663,000 for fiscal year 1999. In addition, as of September 30, 1999, the Port Authority had 292 receivable accounts totaling $5 million.
OBJECTIVE AND
SCOPE
The objective of the audit was to determine whether the Port Authority (1) managed property and facilities to maximize rental and concession revenues; (2) accurately assessed and promptly collected amounts owed by tenants, concessionaires, and other users of Port Authority facilities; and (3) controlled cash collections effectively. The scope of the audit included a review of the Port Authority's revenue transactions that occurred during fiscal years 1998 and 1999 and other periods as appropriate.
To accomplish our audit objective, we reviewed the Port Authority's Property Management Manual; interviewed Port Authority officials and reviewed minutes of board meetings; and reviewed files containing lease documents, accounting records pertaining to delinquent and inactive accounts, and ticket stubs and deposit records for the airport parking lots on St. Thomas and St. Croix.
Our audit was conducted in accordance with the "Government Auditing Standards," issued by the Comptroller General of the United States. Accordingly, we included such tests of records and other auditing procedures that were considered necessary under the circumstances. The "Standards" requires that we obtain sufficient, competent, and relevant evidence to afford a reasonable basis for our findings and conclusions.
As part of our audit, we evaluated the system of internal controls at the Port Authority to the extent we considered necessary to accomplish the audit objective. Internal control weaknesses were identified in the areas of lease management practices, particularly with respect to subleases; prompt collection of amounts owed by users of Port Authority facilities; and controls over cash collected at the airport parking lots. These weaknesses are discussed in the Results of Audit section of this report. The recommendations, if implemented, should improve the internal controls in these areas.
PRIOR AUDIT
COVERAGE
The Office of Inspector General has not issued any reports on the Port Authority during the past 5 years. However, in June 1991, the Office of Inspector General issued a report on the billing and collection functions at the Port Authority, and in December 1998, a public accounting firm issued the single audit report on the Port Authority for the fiscal year ended September 30, 1998 (see Appendix 2).
RESULTS OF AUDIT
OVERVIEW
The Port Authority needed to improve controls over the subleasing of its facilities by tenants, the collection of delinquent accounts receivable, and the collection and deposit of parking lot fees. Specifically, we found that the Port Authority did not (1) assess or collect sublease fees of about $10,600; (2) take effective action to collect $1.17 million on 87 delinquent accounts and an additional $909,562 on 31 delinquent accounts that were written off as uncollectible; and (3) have adequate assurance that all fees collected at the airport parking lots were appropriately deposited into the Port Authority's bank accounts. These conditions occurred because the Port Authority did not always follow the procedures for lease management and collection enforcement contained in its Property Management Manual and did not have written procedures for the write-off of uncollectible accounts and for the collection, deposit, and recording of fees collected at the airport parking lots.
LEASE
MANAGEMENT
PRACTICES
Although the Port Authority's Property Management Manual (Section 7.2(B)(10)) expressly prohibited the subleasing of properties, the Port Authority's Board of Directors approved subleases on a case-by-case basis. However, the Port Authority did not always obtain copies of sublease agreements approved by the Board of Directors or collect the sublease fees that the tenants were required to pay in accordance with the approvals to enter into sublease agreements. As a result, sublease revenues totaling about $10,600 were not realized for fiscal years 1998, 1999, and 2000. In addition, we found that lease agreements were not always executed, tenants did not always maintain required liability insurance coverage, rental increases were not always timely implemented, and quarterly site inspections were not conducted by the Property Management Officers.
Sublease Fees Totaling
$10,600 Not Assessed and
Collected
The Port Authority's Director of Property Management provided us with the names of four tenants who received approval from the Board of Directors to sublease a portion of their properties. Regarding these four tenants, we found that one tenant was not required to submit sublease information to the Port Authority, one tenant did not have any subleases during the period of our review, and two tenants each had two sublease agreements, for a total of four sublease agreements. As part of the approval process to sublease property, the Board of Directors required the tenants to pay a sublease fee of at least 10 percent of the sublease amount to the Port Authority concurrent with the payment of the tenants' monthly rent. However, the Port Authority was not aware of the value of the four sublease agreements because it did not have copies of the sublease agreements. Therefore, the Port Authority was unable to ensure that it was paid the appropriate sublease fee amounts.
To determine the value of the sublease agreements, we requested that the Port Authority obtain copies of the sublease agreements from its tenants. Based on our review of the four sublease agreements for fiscal years 1998, 1999, and 2000, we determined that the Port Authority should have received sublease fees of about $12,000. However, the Port Authority received only about $1,400, or a shortage of $10,600.
Sublease Provisions
of Lease Agreements
Not Standardized
We found that the Port Authority did not have a standardized policy for handling the issue of subleases by its tenants. For example, the lease agreements for the two tenants who had obtained approval to sublease their rented properties contained different wording with respect to subleasing. One of the lease agreements, which was initially executed in June 1976, stated that the lease "shall not" be transferred "without the prior written consent of the Lessor" but that "such consent shall not be unreasonably withheld." The other lease agreement, which was executed in July 1994, stated that the lease "shall not" be transferred "nor sublet" and that any such transfer or sublet "shall be null and void." We further found that in February 1996, the Port Authority's legal counsel proposed wording, which was approved by the Board of Directors, to be inserted into Port Authority leases as follows:
In the event tenant is granted permission to sublet a portion of the premises, Tenant shall pay to the Landlord, concurrent with payment of Tenant's rent to Landlord, not less than ten percent (10%) of the total amount Tenant charges subtenant under the sublease. No such sublease shall become effective unless reduced to writing signed by the Tenant and subtenant, and until it shall have first been approved by the Landlord in writing on the face of the sublease, a copy of which shall be given to the Landlord. Tenant and subtenant may not alter, amend or otherwise modify the terms of any such sublease without the express prior written approval of the Landlord. Landlord shall, upon reasonable notice to subtenant, have the right to make demand on subtenant to produce evidence of all sums paid to Tenant under the terms of the sublease.
Although approved for use by the Board of Directors, this proposed wording has not been used in any subsequent Port Authority leases. In order to strengthen controls in this area, we believe that the Port Authority should develop a standard lease agreement that incorporates the wording proposed by the legal counsel and approved by the Board of Directors in February 1996 and should use the lease agreement for all new and renewed leases. In addition, we believe that the Port Authority should update its Property Management Manual by deleting the clause which expressly prohibits subleasing and by inserting a clause which grants the approval to sublease at the discretion of the Board of Directors.
Regarding the four subleases discussed in this report, we believe that the Port Authority should attempt to collect the sublease fees of $10,600 that were not remitted to the Port Authority for fiscal years 1998, 1999, and 2000. In addition, the Port Authority should require the tenants to immediately begin remitting at least 10 percent of the sublease amount concurrent with payment of the tenants' monthly rent.
Lease Agreements Not
Properly Executed or
Renewed
To determine whether lease agreements were properly executed and were current, we reviewed a judgmental sample of 20 lease agreements. Of the 20 lease agreements, 9 lease agreements had been properly executed and were current, but 8 lease agreements had expired and had not been renewed, 2 lease agreements had not been fully executed because required signatures were not obtained, and 1 lease agreement could not be located by the Port Authority. Regarding the eight lease agreements that had expired, we found no documentation in the tenant files to indicate that lease terms had been extended or that the Port Authority required the tenants to execute new leases.
Liability Insurance Not Obtained by Tenants
The Port Authority's Property Management Manual (Section 7.2(b)(8)) requires that Port Authority tenants obtain comprehensive, noncancellable general liability insurance policies. In addition, the Manual requires that the Port Authority be named as an additional insured and requires tenants to indemnify the Port Authority against any loss or liability arising from events that occur on the premises. Also, with respect to insurance, the lease agreements generally contained a clause that stated, "The Lessee shall deposit with the Lessor a copy of such property insurance policy or policies or a certificate of such insurance coverage." Despite these requirements, we found, for the 20 tenant files reviewed, that 3 tenants had provided the Port Authority with evidence of a valid liability insurance policy and 3 lease agreements did not require the tenants to maintain insurance. However, for the 14 other tenants, we found no evidence that they had obtained the required comprehensive, noncancellable general liability insurance policy.
Required Rental Rate
Increases Not Assessed
Of the 20 tenant files reviewed, we found that 11 lease agreements contained contract language which did not require periodic rental rate increases, 4 lease agreements had appropriate rental rate increases, 4 other lease agreements did not have timely rental rate increases, and the Port Authority could not locate 1 lease agreement.
Regarding the four tenants who did not have timely rental rate increases, they should have been assessed rental increases in accordance with increases in the Consumer Price Index, but such an analysis was not performed by the Property Management Officers. For example, a transportation company should have been assessed a rental rate increase in November 1999, but the Property Management Officer assigned to this tenant had not conducted the rental increase analysis as of August 2000.
Site Inspections Not
Performed or Documented
The Property Management Manual (Section 15.1) states that Property Management Officers should visit Port Authority properties on at least a quarterly basis. In addition, the Manual states that a Property Inspection Report Form should be completed for each field visit conducted by Property Management Officers and that a copy of the form should be submitted to the Directors of Administration and Engineering and the Executive Director. However, we found that only 1 of the 20 tenant files reviewed contained a Property Inspection Report Form, which was dated October 28, 1997. Accordingly, we had little assurance that the Property Management Officers were conducting the required site inspections.
In August and September 2000, we conducted site visits at Port Authority properties and facilities on St. Thomas and St. Croix. We found that two tenants on St. Thomas appeared to have subleased a portion of their properties without informing or obtaining the approval of the Port Authority. Had the Property Management Officers been conducting routine site visits, as required by the Property Management Manual, they most likely would have determined that the two tenants were subletting the properties without the approval or knowledge of the Port Authority.
COLLECTION
ENFORCEMENT
ACTIVITIES
The Port Authority did not effectively carry out collection enforcement activities on delinquent accounts. As a result, as of April 2000, the Port Authority had 87 accounts totaling about $1.17 million that were delinquent more than 90 days. In addition, in December 1998 and February 2000, the Port Authority's Board of Directors approved the write-off of 31 delinquent accounts totaling $909,562 because the accounts were classified as uncollectible.
Collection Efforts Not
Pursued on Delinquent
Accounts Totaling About
$1.17 Million
The Port Authority's Property Management Manual (Section 12.0) states that the Collection Officer should use the following steps for the collection of outstanding accounts:
a. Telephone call B to accounts payable section of entity doing business where invoice remains unpaid 10 days after issuance of invoice
b. Telephone call B to chief financial officer where invoice remains unpaid 15 days after date of issuance
c. Letter of Request B after 20 days invoice remains unpaid
d. Registered demand letter - after 30 days invoice remains unpaid
e. Refer to Legal Office - after 40 days invoice remains unpaid f. Attorney sends registered demand letter - 45 days after invoice remains unpaid
g. Commence legal action and deny use of facilities as applicable - 60 days after invoice remains unpaid
In addition, the Manual (Section 15.3) states that a Collection Effort Report Form should be used on a daily basis by the Collection Officer to serve as a record of initial collection efforts and as a justification for subsequent legal action to be taken. The Manual also states that a copy of the form should be submitted monthly to the Executive Director.
The Port Authority's Collection Officer retired in June 1992, but the Port Authority did not replace this individual. Instead, the collection activities previously performed by the Collection Officer were transferred to the Director of Property Management and the three Property Management Officers. However, we found that the Director and the Property Management Officers either did not conduct or did not document collection efforts in accordance with the Manual.
To determine the collection efforts made and the types of documentation maintained for the 87 delinquent accounts totaling $1.17 million as of April 2000, we reviewed 27 accounts totaling $1.01 million that had delinquent amounts of at least $10,000 for more than 90 days. Of the 27 accounts, we found that only 7 accounts had some type of collection activity. Specifically, three accounts were referred to the Port Authority's legal counsel, three accounts had some type of correspondence prepared by the Property Management Officers requesting payment from the tenant, and one account holder had begun making payments to offset the outstanding amount. For the remaining 20 accounts, we found no documentation of collection activities in accordance with the collection procedures outlined in the Port Authority's Property Management Manual.
Delinquent Accounts
Totaling $909,562
Written Off Without
Adequate Collection
Efforts
The Port Authority did not have written procedures regarding the write-off of uncollectible accounts. Therefore, the Director of Property Management periodically made recommendations for the write-off of uncollectible accounts to the Executive Director. We found that in December 1998 and February 2000, the Director of Property Management recommended that 32 accounts totaling $911,497 be approved for write-off. The Port Authority's Board of Directors approved for write-off 31 of the accounts totaling $909,562.
We reviewed the 31 accounts that were approved for write-off to determine the collection activities performed by the Port Authority prior to classifying these accounts as uncollectible. We found that 13 of the 31 accounts contained some type of collection activity, that 13 accounts had no documentation to support that any collection activity was ever undertaken, and that the tenant files could not be located by Port Authority personnel for the remaining 5 accounts.
During the Port Authority's Board of Directors meeting in December 1998, the Executive Director stated that although the Board could anticipate additional recommendations for the write-off of uncollectible accounts from the Director of Property Management, the Executive Director did not approve of additional write-offs. The Executive Director stated that he did not believe that "sufficient due diligence to collect" on these delinquent accounts had been performed by the Property Management Officers.
We concur with the statements made by the Executive Director regarding the lack of collection efforts both performed and documented by the Property Management Officers. In order to strengthen internal controls over the collection of delinquent and inactive accounts, we believe that the Port Authority should either take action to ensure that the Property Management Officers carry out the assigned collection enforcement tasks or consider reimplementing the position of the Collection Officer and removing the collection function from the Property Management Officers.
AIRPORT PARKING
LOT COLLECTIONS
The Port Authority did not have standardized procedures for collecting, depositing, recording, and verifying parking fees at its airport parking lots on St. Thomas and St. Croix. The airport access system, which machine-stamped onto a ticket the date and time that a vehicle entered and exited the airport parking lot, did not work at the exit locations. As a result, the date and time that a vehicle exited the airport parking lot could not be determined from the used tickets. In addition, because the Port Authority did not issue magnetic card keys to taxicab association members (who were authorized to use the airport facilities) or to other daily users of the parking lots, the access system had to be bypassed to indicate a nonrevenue ticket. Further, the Port Authority's Internal Auditor did not review the used tickets on a periodic basis to ensure that the value of the tickets used was equal to the amount of funds collected and deposited. Accordingly, there was no assurance that funds collected by the airport parking lot cashiers were appropriately deposited into the Port Authority's bank account.
Because there were no established collection procedures at the airport parking lots, the airport parking lot cashiers used different procedures on St. Thomas and St. Croix. However, in our opinion, neither the collection procedure used at the Cyril E. King airport parking lot on St. Thomas nor the collection procedure used at the Henry E. Rohlsen Airport parking lot on St. Croix provided adequate controls to ensure that amounts collected were appropriately deposited into the Port Authority's bank accounts.
St. Thomas Parking Fees
Not Verifiable Based on
Parking Lot Tickets
At the Cyril E. King Airport on St. Thomas, the cashiers (three shifts per workday) completed a Parking Lot Daily Summary of Collections and Deposits worksheet, prepared a Certificate of Deposit (deposit slip) for the funds collected during their work shift, and deposited the funds into the bank depository located at the airport. The worksheets were forwarded to a Property Management Officer, who completed a Daily Summary of Collections and Deposits worksheet, which combined the collection activities of the three cashiers and provided a month-to-date collection total. However, these procedures did not ensure that the funds collected could be verified based on the parking lot tickets processed by the cashiers. We selected for review the collection documents related to 7 working days (May 28 to May 31, 1999 and July 3 to July 5, 1999). The total funds deposited during these 7 days was $4,512, but the amounts to be collected based on the parking lot tickets totaled only $4,156. Although the deposits were $356 more than could be determined from the used tickets, the potential existed for the difference to be a cash shortage because controls were not adequate to ensure that all collections were deposited to the Port Authority's account.
We also found that because the access control system did not work at the exit locations, the cashiers wrote the amount collected on each ticket or indicated in writing that the ticket was a nonrevenue ticket. The cashiers told us that a nonrevenue ticket would result from a taxicab association driver, a daily user of the airport parking lot who paid on a monthly basis, or a person who spent less than 15 minutes between the time of entry and exit at the airport. Based on our review for the 7 workdays in our sample, we found that the cashiers handled an average of 1,250 tickets per day but that only about 315 tickets yielded actual cash collections. Therefore, on a daily basis, about 935 tickets were classified as nonrevenue. However, there was no way to verify these classifications.
St. Croix Parking Fees
Also Not Verifiable Based on Parking Lot Tickets
At the Henry E. Rohlsen Airport on St. Croix, prior to February 2000, the cashiers did not prepare any documentation to show how much funds they collected. Rather, at the end of each work shift (three work shifts per day), the cashier would place the funds collected and the parking lot tickets in an envelope and would write the amount collected on the outside of the envelope. The envelope was then put into a locked box at the Port Authority's Administration Building. The following workday, the Airport Operations Supervisor retrieved the envelopes from the locked box; prepared the Daily Summary of Collections and Deposit worksheet, the Parking Lot Daily Summary of Collections and Deposits worksheet, and a Certificate of Deposit (deposit slip); and deposited the funds at the bank. Beginning in February 2000, the cashiers began preparing the Parking Lot Daily Summary of Collections and Deposits worksheet and the Certificate of Deposit and began depositing the funds into the bank depository located at the airport.
We selected for review the collection records for 6 working days (December 23 and 30, 1998; January 6, 1999; and November 10, 15, and 16, 1999) and found that the cashiers did not write the amount of funds collected on each ticket, as was done at the airport on St. Thomas. Therefore, the tickets could not be used to verify or even to estimate the amounts that should have been collected.
To strengthen controls in this area, the Port Authority should (1) repair the access control systems at the Cyril E. King Airport on St. Thomas and the Henry E. Rohlsen Airport on St. Croix to provide a method for automatically stamping the date and time of exit on the parking lot tickets; (2) consider issuing magnetic card keys to taxicab association members and other daily users of the airports' parking lots to reduce the number of nonrevenue parking lot tickets processed each day; and (3) require the Port Authority's Internal Auditor to review, on a periodic basis, the airports' parking lot tickets and the certificates of deposit to ensure that the funds collected are appropriately deposited into the Port Authority's bank accounts. Finally, because a primary method of preventing theft is segregation of duties, we believe that the collection of the cash and the preparation of the bank deposits should be performed by separate individuals.
RECOMMENDATIONS
TO THE VIRGIN
ISLANDS PORT
AUTHORITY
We recommend that the Executive Director of the Port Authority:
1. Develop and implement a standard lease agreement format to be issued to tenants of the Port Authority. The lease agreement should include standard language with respect to the subleasing of properties and facilities similar to the wording compiled by the Port Authority's legal counsel and approved by the Board of Directors in February 1996.
2. Update the Property Management Manual to delete the existing clause that prohibits subleasing and replace it with a clause that grants the approval to sublease at the discretion of the Board of Directors.
3. Ensure that Port Authority tenant files contain a copy of every sublease approved by the Port Authority's Board of Directors. Also, consideration should be given to creating and maintaining a database of sublease agreements to include but not be limited to tenant name, tenant address, tenant rental amount, tenant lease terms, sublessee name, sublessee rental amount, sublease term, and sublease fee. The database should be updated periodically to include any new tenants that are approved for subleasing.
4. Obtain copies of all sublease agreements from current Port Authority tenants to determine the amount of sublease fees owed the Port Authority and take appropriate collection action. Procedures should also be established to require tenants with subleases to pay the appropriate sublease fees concurrently with regular monthly rental payments.
5. Ensure that all lease agreements are current and properly executed, that all tenants submit a copy of an appropriate liability insurance policy, and that rental rates are timely updated in accordance with the changes in the Consumer Price Index.
6. Require the Property Management Officers to conduct site visits on at least a quarterly basis and to document the site visits on Property Inspection Report Forms.
7. Either take action to ensure that the Property Management Officers carry out the assigned collection enforcement tasks or consider reimplementing the position of Collection Officer and removing the collection function from the Property Management Officers.
8. Establish and implement written policies and procedures for the write-off of uncollectible accounts and ensure that "due diligence" has been performed prior to the approval of accounts for write-off.
9. Establish and implement written policies and procedures for the collection, deposit, and recording of cash collections at the airport parking lots.
10. Repair and/or replace the airport access systems at the Cyril E. King Airport on St. Thomas and the Henry E. Rohlsen Airport on St. Croix to ensure that tickets are machine stamped at the exit locations to indicate the date and time that vehicles exit the airport parking lot. Also, consideration should be given to issuing magnetic card keys to taxicab association members and other daily users of the Port Authority parking lots to reduce the number of nonrevenue tickets processed each day.
11. Require the Port Authority's Internal Auditor to periodically review the tickets and deposits for a sample of workdays to ensure that the funds deposited can be validated by the tickets processed. Also, separate individuals should be assigned to make cash collections at the parking lots and to prepare daily deposits.
VIRGIN ISLANDS
PORT AUTHORITY
RESPONSE
The March 19, 2001 response (Appendix 3) to the draft report from the Executive Director of the Virgin Islands Port Authority concurred with the 11 recommendations and indicated that corrective actions had been or would be taken.
OFFICE OF
INSPECTOR
GENERAL
REPLY
Based on the response, we consider Recommendation 10 resolved and implemented and Recommendations 2 and 3 resolved but not implemented. We also requested additional information for Recommendations 1, 4, 5, 6, 7, 8, 9 and 11 (see Appendix 4).
With regard to Recommendation 1, the response stated, "All of the lease agreements sampled [as part of the audit] are agreements entered into before February, 1996. Thus, the Authority feels that it is already complying with this recommendation." This statement is misleading because, although many of the leases we reviewed were dated prior to February 1996, they were for current and active tenants of the Port Authority. The Port Authority did not always execute new or renewal leases for its tenants when the prior leases expired. Therefore, the most recent leases available in the files for the majority of current and active tenants were originally executed prior to February 1996. If the Port Authority had executed new or renewal leases for active tenants when the prior ones expired, it could have eventually updated all of its leases with the proposed standard lease agreement language.
APPENDIX 2 - PRIOR AUDIT REPORTS
OFFICE OFINSPECTOR GENERAL REPORT
The June 1991 report "Property Management, Billing, and Collection Functions, Virgin Islands Port Authority" (No. 91-I-939) stated that the Port Authority needed to (1) ensure that all amounts owed by tenants, concessionaires, and others were assessed and collected; (2) enforce collection of delinquent rental accounts; and (3) improve its management of rental properties. During our current audit, we found that the Port Authority adequately assessed amounts owed by users of its aviation, marine, and other facilities but that improvements were needed over the collection of delinquent accounts and the management of rental properties.
SINGLE AUDIT
REPORT
The December 1998 single audit report of the Virgin Islands Port Authority, which was conducted by a public accounting firm, concluded that the financial statements presented fairly, in all material respects, the financial position of the Port Authority as of September 30, 1998. In addition, with regard to the lease management and collection functions of the Port Authority, the report recommended that management (1) establish formal procedures to review and reclassify old outstanding checks, (2) consider whether inactive accounts receivable should be written off, (3) expand the current analysis of accounts receivable past due to include an assessment of the collectibility of these accounts receivable, and (4) consider establishing formal procedures to monitor contracts and commitments.
APPENDIX 3 - RESPONSE TO DRAFT REPORT
APPENDIX 3
Page 2 of 21
APPENDIX 3
Page 3 of 21
APPENDIX 3
Page 4 of 21
APPENDIX 3
Page 5 of 21
APPENDIX 3
Page 6 of 21
APPENDIX 3
Page 7 of 21
APPENDIX 3
Page 8 of 21
APPENDIX 3
Page 9 of 21
APPENDIX 3
Page 10 of 21
APPENDIX 3
Page 11 of 21
APPENDIX 3
Page 12 of 21
APPENDIX 3
Page 13 of 21
APPENDIX 3
Page 14 of 21
APPENDIX 3
Page 15 of 21
APPENDIX 3
Page 16 of 21
APPENDIX 3
Page 17 of 21
APPENDIX 3
Page 18 of 21
APPENDIX 3
Page 19 of 21
APPENDIX 3
Page 20 of 21
APPENDIX 3
Page 21 of 21