Attachment 2 - Management and Performance Audit of the Port of Richmond_3.18.24.pdf

Management and Performance
Audit of the Port of Richmond
March 18, 2024
2478 Tierra Dr, Los Osos, CA 93402
(805) 242-2071
[email protected]
www.GPPAnalytics.com

Table of Contents
Transmi(al Le(er .................................................................................................................... 2 Introduc5on ............................................................................................................................ 5 Findings .................................................................................................................................. 16 Finding 1: Port Strategic Plan ............................................................................................ 16 Finding 2: Port Procedures ............................................................................................... 20 Finding 3: Maintenance Staﬀ and Deferred Maintenance ................................................ 22 Finding 4: Finance Staﬀ and Financial Monitoring ........................................................... 25 Finding 5: Lease Solicita@on, Selec@on, and VeCng Process ........................................... 29 Finding 6: Lease Volume Guarantee Veriﬁca@on and Documenta@on ............................. 33 Finding 7: Environmental Compliance and Lease Monitoring .......................................... 37 Finding 8: Security at Port Facili@es .................................................................................. 38 Finding 9: Debt to the General Fund ................................................................................ 41 Finding 10: Personal Emails .............................................................................................. 43 Recommenda5ons List ........................................................................................................... 45 A(achment A: Wri(en Statement for Port Audit Findings…………..…………………………………………48 A(achment B: Responses to General Comments from Original Scope……………………………………52 A(achment C: Memo II……………………………………………………………………...…………………………………55 A(achment D: Internal Audit of Port of Richmond, June 28, 2011……………………………………...…60

2 Transmittal Letter March 18, 2024 City Council Members City of Richmond 440 Civic Center Plaza Richmond, CA 94804 Dear Mayor, Vice-Mayor, and Members of the Richmond City Council, I am pleased to present the audit report for the "Management and Performance Audit of the Port of Richmond" conducted by GPP Analy@cs Inc. for the City of Richmond. Our audit was conducted in compliance with the Interna@onal Professional Prac@ces Framework (IPPF) of the Ins@tute of Internal Auditors and the Generally Accepted Government Audi@ng Standards (GAGAS) of the U.S. Government Accountability Oﬃce. The primary objec@ve of our audit was to assess the overall management, eﬃciency, and eﬀec@veness of all Port opera@ons and services. This included a comprehensive evalua@on of: • the organiza@on's opera@onal and administra@ve func@ons, use of public funds, compliance with regulatory standards, and organiza@onal transparency; • the adequacy of control systems, resource management, staﬃng levels, and the eﬀec@ve use of technology; • the responsiveness to various stakeholders and the integrity of lease management; and • the ﬁnancial management prac@ces, including procurement and budge@ng processes, as well as the eﬀec@veness of communica@on across all levels. This comprehensive approach was intended to iden@fy areas for improvement and ensure compliance across a wide range of opera@onal and administra@ve func@ons. The following is a summary of the audit ﬁndings in the report: Finding 1: Port Strategic Plan. The Port of Richmond’s absence of a strategic plan signiﬁcantly undermines its opera@onal eﬃciency and long-term planning, leading to unclear investment priori@es and deteriora@ng infrastructure. To address these issues, the City should develop and formally adopt a strategic plan, ensuring its regular review and adapta@on. This will enable the Port to eﬀec@vely allocate resources, adract stable tenants, and secure funding, ul@mately enhancing its viability and economic contribu@ons. Finding 2: Port Procedures. The Port of Richmond’s lack of wriden procedures for managing its $10.5 million in opera@ng revenue and $29.5 million in assets poses signiﬁcant opera@onal and compliance risks, especially during staﬀ turnover. Without documented processes for key func@ons, like lease revenue collec@on and mari@me opera@ons, the Port is vulnerable to disrup@ons and knowledge loss. To mi@gate these risks and ensure consistent opera@on, it’s crucial for the Port to develop and maintain wriden procedures for its essen@al func@ons and establish a succession strategy for cri@cal roles.

3 Finding 3: Maintenance Staﬀ and Deferred Maintenance. Our audit has uncovered signiﬁcant ineﬃciencies in the maintenance of the Port’s assets, leading to unplanned ﬁnancial support from the City’s General Fund. These issues pose a risk to the Port’s asset value and emergency preparedness, and ul@mately its long-term opera@onal viability. To address these issues, we recommend hiring a Maintenance Manager, establishing clear billing system for maintenance work performed by the Public Works Department, and conduc@ng a comprehensive facility condi@ons assessment to ensure asset preserva@on and opera@onal readiness.

Finding 4: Finance Staﬀ and Financial Monitoring. The Port’s ﬁnancial management is hindered by a lack of dedicated ﬁnance staﬀ at the Port and insuﬃcient ﬁnancial oversight, leading to revenue growth that lags behind regional inﬂa@on and poten@al underinvestment in opera@ons.

The absence of a Finance Manager since FY 2014–15 has limited the Port’s capability for in- depth ﬁnancial planning and monitoring which is essen@al for strategic fee seCng and successful grant applica@ons. Document management issues further complicate ﬁnancial accountability. To enhance ﬁnancial management and alignment with its mission, the City should reinstate a Finance Manager for the Port.

Finding 5: Lease Solicita5on, Selec5on, and VeSng Process. The Port lacks documented Port- speciﬁc procedures for leasing, impac@ng the transparency and due diligence in tenant solicita@on, selec@on, and veCng. With no records in these areas for most of the ten lease agreements between 2013 and 2023, there’s a risk of non-compliance with City policies and state laws. The absence of clear processes increases the poten@al for fraud and undermines the op@miza@on of tenant agreements for the Port’s beneﬁt. Addressing these deﬁciencies by establishing Port-speciﬁc leasing procedures and clarifying the role of the Surplus Property Authority in the City will enhance accountability and align leasing prac@ces with the Port and community interests.

Finding 6: Lease Volume Guarantee Veriﬁca5on and Documenta5on. The Port’s lease agreement with Auto Warehousing Co. (AWC) includes vehicle processing guarantees cri@cal for oﬀseCng bond payments. Despite AWC’s ﬁnancial compliance, the Port’s lack of veriﬁca@on of reported vehicle processing volume, and its reliance on AWC-provided ﬁgures without suppor@ng evidence like vessel manifests, undermines revenue assurance. Industry best prac@ces advocate for such veriﬁca@on to prevent inaccuracies and poten@al fraud. Addressing staﬃng shortages and implemen@ng robust veriﬁca@on procedures for cargo volumes will enhance revenue reliability and align the Port’s prac@ces with industry standards.

Finding 7: Environmental Compliance and Lease Monitoring. Despite tenant lease agreements containing environmental provisions, there’s no evidence of proac@ve and systema@c oversight by the Port, adributed to insuﬃcient procedures and staﬃng. This deﬁciency poses risks to the City’s legal and ﬁnancial standing. Implemen@ng explicit monitoring policies and documen@ng compliance eﬀorts are crucial to mi@gate poten@al environmental, legal, and ﬁnancial repercussions, ensuring adherence to regula@ons and safeguarding the Bay’s environment.

4 Finding 8: Security at Port Facili5es. Without security, vacant Port proper@es are suscep@ble to trespassing and vandalism, increasing risks and costs for the City. With three unleased buildings as of January 2024, a lack of security measures has led to damage and could complicate lease nego@a@ons and/or delay tenant occupancy. Previous security eﬀorts at Terminal 1 lack assessment for eﬀec@veness, highligh@ng the need for established security procedures for vacant proper@es. Recommenda@ons include priori@zing tenant solicita@on for vacant proper@es and establishing security protocols to mi@gate trespassing and vandalism risks and their associated costs.

Finding 9: Debt to the General Fund. The Port’s unresolved debt to the City General Fund, ini@ally reported as $16,942,096 in 2013 and paid down to $12,485,369.72 by FY 2023–24, lacks substan@a@ng documenta@on for its origin and purpose. This absence of records complicates the Port’s ability to jus@fy the reasonableness of its fees under state law. The issue, consistent with ﬁndings from a 2011 audit, suggests a broader problem of record-keeping within City departments. Recommenda@ons include a ﬁnal eﬀort by the Finance Department to locate documenta@on for the Port loans and a review of all City department loans to ensure compliance with state law, poten@ally resta@ng and elimina@ng unsubstan@ated liabili@es to maintain legal compliance.

Finding 10: Personal Emails. During our audit, we noted Port and City employees in Richmond using personal email accounts for City business. This prac@ce could hinder the City’s ability to respond to California Public Records Act requests, risking non-compliance, as personal emails fall outside the City’s purview. The City’s policies on technology use in its Administra@ve Manual are inconsistent, allowing both ‘minimal personal use’ while also sta@ng that technologies are for ‘City-related ac@vi@es only’. Recommenda@ons include amending the Administra@ve Manual for clarity on personal internet and email usage and educa@ng employees on compliance with these policies and CPRA requirements.

We appreciate the coopera@on and assistance provided by the staﬀ of the City of Richmond throughout this audit. Their support was instrumental in the successful comple@on of this project.

We believe this report will provide valuable insights and recommenda@ons to enhance the eﬀec@veness of the Port’s opera@ons and strategic role within the City of Richmond. Should you require any further informa@on or wish to discuss the ﬁndings in more detail, please feel free to contact us.

Sincerely,
Julian Metcalf
Partner and CEO
GPP Analy@cs Inc.
805-242-2071
jmetcalf@[email protected]

5 Introduction
This audit report presents the ﬁndings of the “Management and Performance Audit of the Port of Richmond” conducted for the City of Richmond by GPP Analy@cs Inc.

Standards of Audit
This audit was conducted in accordance with the Ins@tute of Internal Auditors (IIA) Professional Prac@ces Framework (IPPF) and the U.S. Government Accountability Oﬃce’s (GAO) Generally Accepted Government Audi@ng Standards (GAGAS). 1; 2 Those standards require that we plan and perform the audit to obtain suﬃcient and appropriate evidence to provide a reasonable basis for our ﬁndings and conclusions based on our audit objec@ves. We believe that the evidence obtained provides a reasonable basis for our ﬁndings and conclusions based on our audit objec@ves.

Objec3ves of a Performance Audit
According to the U.S. GAO, the objec@ve of performance audits “include assessments of program eﬀec@veness, economy, and eﬃciency; internal control; compliance; and prospec@ve analyses.” The IIA states that a performance audit “assists management and those charged with governance and oversight with, among other things, improving program performance and opera@ons, reducing costs, facilita@ng decision-making by par@es responsible for overseeing or ini@a@ng correc@ve ac@on, and contribu@ng to public accountability.” Both standards emphasize the importance of an informed assessment to improve program performance and opera@ons, reduce costs, facilitate decision-making, and contribute to public accountability.

Evidence Standards
Both the IIA and the GAO set rigorous evidence standards to ensure the reliability and credibility of performance audits. The IIA’s standards require that auditors obtain suﬃcient, reliable, relevant, and useful evidence to achieve the audit’s objec@ves. This involves a systema@c and disciplined approach to evaluate and improve the eﬀec@veness of risk management, control, and governance processes. The GAO’s standards also demand that auditors gather suﬃcient and appropriate evidence to provide a reasonable basis for their ﬁndings and conclusions. Evidence must be convincing enough that a prudent person would reach the same conclusions as the auditor. This includes the assessment of qualita@ve and quan@ta@ve data, direct observa@ons, and the corrobora@on of evidence from mul@ple sources.

Audit Objec3ves and Methodology
As deﬁned in our contract with the City and paraphrased here, the audit included a comprehensive evalua@on of the Port’s ﬁnancial management, including the use of public funds, adherence to internal controls, and overall ﬁnancial oversight. Opera@onal eﬃciency was reviewed, focusing on prac@ces, staﬃng, and poten@al for cost-eﬀec@ve improvements. The organiza@onal structure was compared with similar en@@es to iden@fy areas for enhancement. Technology and infrastructure were assessed for adequacy and alignment with business needs. Compliance with government regula@ons and transparency in opera@ons were key areas of focus. Tenant services, stakeholder responsiveness, and 1 Ins%tute of Internal Auditors, Interna%onal Professional Prac%ces Framework 2017. 2 United States Government Accountability Oﬃce’s Government Audi%ng Standards 2018 Revision.

6 lease management were examined. Legal and ethical aspects, including poten@al conﬂicts of interest and ac@ons against delinquent tenants, were also reviewed. The audit aimed to provide thorough recommenda@ons for improving the Port’s opera@ons, ensuring eﬀec@ve management of resources, and enhancing stakeholder rela@onships. Audit Timeline The audit process was structured as follows: Entrance Conference: July 24, 2023 Submission of Tes@ng Plan: October 19, 2023 Drar Report Submided: February 1, 2024 Exit Conference With City Staﬀ: February 8, 2024 Final Informa@on Submided by City Staﬀ: March 5, 2024 Revised Drar Submided: March 6, 2024 Final Report Submided: March 18, 2024 Ini$al Phase The audit was ini@ated on July 24, 2023, when GPP Analy@cs met with City and Port staﬀ for an entrance conference at Richmond City Hall and a tour of Port facili@es. During August and September 2023, we interviewed 23 City and Port staﬀ, Port tenants, and other stakeholders related the Port’s opera@ons. We collected documents from the Port, including two on-site visits to the Port oﬃces to review archived materials. The City granted our team view-only access to its ﬁnancial system, and we performed several analy@cal reviews of informa@on from that system, including assessing trends and a review of anomalous ac@vi@es that could signify higher risk areas. These cumula@ve ac@vi@es informed our audit’s risk assessment. Risk Assessment Process Our audit team then conducted a risk assessment, in accordance with both the Ins@tute of Internal Auditors (IIA) and Generally Accepted Government Audi@ng Standards (GAGAS), to ensure a comprehensive and compliant audit methodology. The process commenced with a preliminary survey to assess all risks and observa@ons the team noted during the ini@al phase of the audit. We then ranked the risks and observa@ons based on their poten@al likelihood and impact. This was compared against the scope of the audit and the audit resources. The audit team evaluated all ini@al evidence and informa@on, reviewed possible criteria for poten@al ﬁnding areas, performed a gap analysis to iden@fy addi@onal informa@on that was needed, and created a Tes@ng Plan. The plan was shared with Port and City staﬀ on October 19, 2023. Port and City staﬀ shared feedback during subsequent mee@ngs.

7 Tes$ng Phase During the tes@ng phase, a variety of analyses were performed, and addi@onal documents were scru@nized. The team analyzed expenditures and accounts payable records within the City’s ﬁnancial system, along with accounts receivable and collec@ons. We iden@ﬁed a random and judgmental sample of backup ﬁnancial documents, which we collected on November 28, 2023, from one of the City’s oﬀ-site storage facili@es. There was a comprehensive review of 11 peer ports conducted to gain compara@ve insights. Documents such as lease agreements, tenant correspondence, citywide policies, and tenant payment records were thoroughly analyzed. City Council minutes were also reviewed to ﬁll gaps in records that were not directly available from the Port. Furthermore, the team conducted interviews with external sources and gathered documents from relevant oversight and grantmaking organiza@ons to complement the data collected. During the tes@ng phase the audit team experienced some minor delays to the audit process. The City’s ﬁnance staﬀ indicated that since they were undergoing their annual ﬁnancial audit during the same @me and that they were be unable to provide some of the requested informa@on in a @mely manner due to limited staﬃng. Arer discussion with the City, we revised the audit @meline and informed the Mayor and City Council of the new @meline via email on November 7, 2023. The extended @meline proved helpful since even with the City’s assistance, the Finance department was unable to arrange our visit to their oﬀsite storage facility un@l the end of November. Dra7 Report On February 1, 2024, GPP Analy@cs provided City staﬀ with a conﬁden@al copy of our Drar Report, which they reviewed for factual accuracy and any inadvertent inclusion of conﬁden@al informa@on. For all feedback and requests for revisions the City was asked to provide suﬃcient suppor@ng evidence and documenta@on. The City conﬁrmed it had provided all informa@on on March 5, 2024. Revised Dra7 Report Based on feedback from City staﬀ, GPP Analy@cs amended the Drar Report and provided a Revised Drar Report to City staﬀ on March 6, 2024, with a request for a wriden response to each of the report recommenda@ons. We received the wriden responses from the City on March 15, 2024, and they are included as adachments to this report. Final Report The Final Report, which combines the Revised Drar and the City’s wriden responses, was transmided to the Mayor and City Council on March 18, 2024. Collabora3on Acknowledgement We acknowledge and appreciate the coopera@on and assistance throughout this audit provided by Port staﬀ, the Finance Department, the City Manager’s Oﬃce, and other City staﬀ, as well as external stakeholders.

8 Ques3ons Asked in the Scope The City of Richmond provided the following ques@ons in the agreement to perform the audit. We’ve addressed each below with either an indica@on of a resul@ng ﬁnding or steps that were performed to assess the ques@on. Organiza$onal Overview 1. Is the Port making the best use of public funds? This ques@on is most directly addressed in Finding 1, which discusses the lack of a strategic plan for the Port. Without a strategic plan the Port has had a limited deﬁni@on by which to deﬁne “best use”. The lack of a plan also limits the Port’s ability to access grant funding, which further limits its opportunity to maximize public funds. 2. Is the Port u5lizing eﬃcient opera5ng prac5ces? In a general sense, no, the Port is not u@lizing eﬃcient opera@ng prac@ces. As discussed in Finding 3 and Finding 4, the Port is understaﬀed and, since the death of the prior Port Director in 2020, it has also experienced a loss of ins@tu@onal knowledge. This has been made worse by the lack of wriden policies and procedures for key Port func@ons as discussed in Finding 2. 3. Does the Port have an eﬀec5ve organiza5on and/or management structure, including staﬃng and opera5ons, when compared to other similar ports? Are there opportuni5es for improvement? As seen in the comparison chart further below in the introduc@on, the Port has limited staﬃng compared to most of its peers. Further, it is unusual that the Port, which is organized as an enterprise fund, is now managed within a General Fund department, and that it is overseen by the City Council directly rather than by a dedicated commission. While these two aspects of the Port’s structure are uncommon, we could not ﬁnd objec@ve evidence that it is causing a problem at the @me of this report. However, if the amount of @me necessary for oversight, review, and approval increases signiﬁcantly in the future, this could become a challenge for the City Council. As of January 2024, the ﬁndings in this report discussing the lack of a strategic plan and insuﬃcient staﬃng represent more immediate risks to the City and the Port (Findings 1, 3, and 4 respec@vely). 4. Is the Port complying with internal controls, government rules and regula5ons? As detailed in Finding 6 and Finding 7 respec@vely, the Port is not properly monitoring its lease agreements regarding compliance with revenue volume and environmental prac@ces.

9 5. Does the Port’s current oversight structure guarantee transparency and public access to the informa5on? If not, what are the recommenda5ons? As men@oned above, it is unusual for a Port to be directly overseen by a general government legisla@ve body like the City Council. Most ports are overseen by a commission or board purely focused on Port-related ac@vity. While we could not ﬁnd objec@ve evidence that the oversight structure has hindered transparency and access to informa@on, a dedicated Port oversight body, such as a commission appointed by the City Council, could streamline access to Port informa@on and provide more resources to monitor the Port’s ac@vi@es. Opera$ons and Maintenance 6. Does the Port have an adequate management control system for accoun5ng measuring, repor5ng, and monitoring its leases? No, Finding 6 and Finding 7 respec@vely detail how the Port is not properly monitoring its lease agreements for compliance with revenue volume and environmental prac@ces. 7. Are staﬃng levels appropriate for the size and complexity of the Port’s opera5ons and business requirements? No, the addi@on of a Finance Manager and Maintenance Manager, as recommended in Finding 3 and Finding 4, would free other posi@ons in the Port to beder perform their required du@es. 8. Are there opportuni5es for management/staﬀ to carry out opera5ons in a diﬀerent way that might yield desired results more eﬀec5vely or at a lower cost? In a general sense yes, all the ﬁndings in the report point to opportuni@es to improve opera@ons that would yield more eﬀec@ve results. Some recommenda@ons, such as adding staﬀ, would come at a higher annual cost, but as noted in the ﬁndings these baseline opera@ng costs should be considered and included when calcula@ng all future lease terms and fees so that future revenue can more accurately reﬂect the cost of opera@ng the Port. 9. Is security at the Port eﬀec5ve? What are the recommenda5ons for improvement? No, Finding 8 details security needs of the Port which are not being met and the associated risk. 10. Are there speciﬁc physical changes to infrastructure that should be made to the Port proper5es that would improve the opera5on and maintenance of the facili5es? Maintenance to Port infrastructure has oren been deferred. This is discussed in Finding 1 regarding the lack of a Port strategic plan and Finding 3 regarding the need for a Maintenance Manager. Before iden@fying speciﬁc assets that need improvement or replacement, we recommend that the Port and City Council complete and approve a strategic plan for the Port. Such a plan would then provide clear funding priori@es for any future changes to infrastructure.

10 11. Is technology adequate and u5lized eﬃciently? Is the technology in alignment with business needs and relevant industry benchmarks? Similar to Ques@on 10 above, we recommend that the Port and City Council complete and approve a strategic plan for the Port, as discussed in Finding 1. Such a plan would then provide priori@es by which to assess the adequacy of technology at the Port and where technology could be beder u@lized. As of the date of this report, the Port makes use of standard Citywide IT technology for its administra@ve opera@ons. 12. Are leases or loan rates reasonable compared to industry standards and local market? As discussed in Finding 5, we could not ﬁnd documenta@on at the Port regarding how the lease rates were calculated prior to their ini@a@on or how they compared to similar commercial real estate in the City or region. Without such documenta@on it is unclear how lease terms were established and if they are appropriate. There was one excep@on, where we found documenta@on of one property that was compared to commercial real estate values, but this occurred several years arer the lease term began. Tenant Services 13. Is the Port responsive to the needs of customers, including tenants, city departments, council, members of the broader community, and regulatory agencies? Recommend how this could be more eﬀec5ve. In the ini@al phase of the audit, we interviewed representa@ves from most tenants, a variety of relevant City staﬀ, and the San Francisco Bay Conserva@on and Development Commission (BCDC). We also oﬀered to interview all City Council members. We heard a variety of responses from tenants, but the most common theme was that frequent staﬀ turnover at the Port in recent years has meant they have not always known who to contact or what to expect from the Port. The City departments we spoke with seemed engaged with Port, but we believe that some, such as the Department of Public Works, would beneﬁt from a wriden agreement to deﬁne their rela@onship and how work performed for the Port is charged back to the General Fund (as noted in Finding 3). Staﬀ with BCDC did provide feedback that the responsiveness of the City’s Port and the City’s Planning Department has been quite minimal and disengaged, especially rela@ve to other Bay Area ports. 14. Does the Port have an adequate management control system for measuring, repor5ng, and monitoring its leases? No, Finding 6 and Finding 7 respec@vely detail how the Port is not properly monitoring its lease agreements for compliance with revenue volume and environmental prac@ces.

11 15. Review and make recommenda5ons regarding policies and procedures rela5ng to tenant services. As of January 2024, the Port does not have policies and procedures speciﬁc to Port func@ons, as discussed in Finding 2. In Finding 6 and Finding 7 of this report we detail speciﬁc prac@ces the Port should follow to more eﬀec@vely monitor its lease agreements. 16. Can the Port take any legal ac5ons against the delinquent tenants to recover lost revenue? All ac@ve lease agreements we reviewed have provisions regarding delinquent payments. Furthermore, we believe that following our recommenda@ons to increase staﬃng for the Port will increase the capacity of staﬀ in exis@ng posi@ons to beder monitor delinquencies and other tenant related issues. 17. Are there any conﬂict-of-interest issues involving any current or former City Council members, Current or former City staﬀ, Current or former Port’s tenants, Current and former Port’s contractors? Arer a careful review, we did not ﬁnd documenta@on to support conﬂicts of interest between City employees and current or former Port contractors. General Administra$on 18. Is the Port adequately accoun5ng for the prudent and eﬀec5ve management of the resources entrusted to them? As discussed in Finding 4, the Port relies on the Finance Department to manage much of its day-to-day accoun@ng ﬁnancial management. We recommend adding a Finance Manager to the Port, who can beder assist the Port with directly managing its ﬁnancial resources. This will allow the Finance Department to serve in an oversight capacity. 19. Is the Port following sound procurement prac5ces, budge5ng process, and accoun5ng rules? Yes, with some noted excep@ons. Our tes@ng of the Port’s ﬁnancial records suggest it is following Citywide procurement and budge@ng prac@ces and accoun@ng rules. However, Finding 9 discusses debt that is recorded as owed to the General Fund by the Port, but the City lacks suﬃcient documenta@on to substan@ate the loan. As discussed in Finding 4, the Port would beneﬁt from increased ﬁnancial oversight by the Finance Department. 20. Review and make recommenda5ons, as applicable, on the following: a. The budge5ng process and purchasing system The Port’s budget process appeared to comply with City policies but would be strengthen with the adop@on of a strategic plan as discussed in Finding 1. Such a plan would help shape clearer budget priori@es and make beder use of the Port’s limited resources. We reviewed randomly selected samples of contracts used between ﬁscal years 2016–17 to 2022–23 and found corresponding records of public solicita@on and City Council minutes approving the contracts. We conducted a review of accounts payable transac@ons, or purchases that were paid by the Port. We randomly selected samples from between ﬁscal

12 years 2016–17 to 2022–23 and added numerous judgmental samples of transac@ons from a broader period that included targeted higher-risk areas such as travel, food, and other purchasing paderns. To collect most of the samples we traveled to the City’s oﬀsite storage facility, accompanied by City staﬀ, to review and scan suppor@ng documents. Our tes@ng did not reveal any material problems and found required approvals associated with the tested samples. However, neither the Finance Department nor the Port could locate records rela@ng to ﬁve samples out of the 41 we requested. This problem is discussed in Finding 4 of this report. b. Accoun5ng systems and cash management controls As discussed in Finding 4, adding a Finance Manager posi@on within the Port would strengthen its knowledge of its ﬁnancial posi@on and management, and provide the Finance Department with more capacity to monitor the Port’s ﬁnancial ac@vi@es. i. Cash management The Port reports having no direct access to cash and the Finance Department manages its liquidity. ii. Rent roll informa5on of current leases Our review of documents suggest that staﬀ have recently beder organized and consolidated rent roll and lease informa@on. As men@oned in Finding 2, the lack of policies and procedures about cri@cal Port func@ons, such as rent collec@on, means there is a risk of loss of ins@tu@onal informa@on. iii. Transfer in and out The Port has no direct access to make transfers in and out of the Port fund. However, as noted in Finding 3 regarding the need for a Maintenance Manager at the Port, the cost of the Department of Public Works providing maintenance services for the Port is not properly tracked. This means that the true cost of internal services provided to the Port by the General Fund are not reﬂected in transfers out from the Port. iv. Rent roll informa5on of each sublease As discussed in Finding 6 and Finding 7 regarding lease monitoring generally, the Port is not suﬃciently monitoring lease agreements, which includes any poten@al subleases, of which we found no records maintained by the Port. We do not know how common subleases are since most lease agreements with the Port and tenants disallow them. v. Loans made to the Port and other debt accrued Finding 9 addresses the lack of documenta@on our audit revealed related to loans reportedly made from the City’s General Fund to the Port.

13 c. The adequacy of communica5ons and feedback at all levels, including the council, tenants, management, staﬀ, and customers See response to Ques@on 13 above. 21. Assess the adequacy of Port ﬁnancial oversight from the Finance Department. As discussed in Finding 4, the Finance Department performs most of the day-to-day ﬁnancial management work for the Port. We recommend adding a Finance Manager posi@on within the Port because this would provide the Finance Department with more capacity to monitor the Port’s ﬁnancial ac@vi@es. Peer Summaries Figures i.1 and i.2 on the following two pages provide an overview of the structure, existence of planning documents, budgets, and staﬃng of eleven peer ports, rela@ve to the Port of Richmond. As noted in the text, please keep in mind that each port is unique in the markets it serves, its structure, staﬃng, and funding. This makes direct comparison diﬃcult. Instead, please refer to this chart to illustrate only broader dis@nc@ons between ports. Volume measures of port ac@vi@es are mostly excluded from this chart because each port’s imports and exports have diﬀering measures that make comparison possibly misleading.

14 Figure i.1: Peer Ports – Structure and Planning Port Name Structure Primary Trade and Mari3me Opera3ons Governed By Operated By Regularly Updated Strategic Plan? Richmond, CA A division of the city’s Community Development Department. Operates a seaport and property management functions. Automobiles (reported 91,252 imported in FY 2023), and cooking oils, and commercial real estate. Richmond City Council. Municipal/Port Staff No, plan drafted in 2007 but not adopted by City Council at time. Benicia, CA AMPORTS has rights to operate the Port until 2031, at which time the city may operate it as an international port or give the lands to the state. Operates a seaport. Automobiles (volume not reported), bulk cargo handling, and ship repair/maintenance. AMPORTS is the Port Authority in the Port of Benicia. Amports (private) Not public Hueneme, CA The Oxnard Harbor District is an independent special district. Operates a seaport and property management functions. Fresh produce, artmobiles ($11.1 billion in value reported imported in 2023), breakbulk, and containerized goods. 5-member commission elected at large within District. Municipal/Port Staff Yes Humboldt Bay, CA The Humboldt Bay Harbor, Recreation and Conservation District is an independent special district. Operates a seaport and property management functions. Lumber and wood products alongside bulk cargo. Offshore wind terminal is planned. 5-member commission elected by district. Municipal/Port Staff No, but the Port adopted a 2007 Management Plan. Oakland, CA Port operates as an independent department of the City of Oakland. Operates an airport, seaport, and property management functions. Container, and bulk cargo terminals, facilitating international trade. 7-member Board of Commission. Commissioners are nominated by the Mayor and appointed by the City Council. Municipal/Port Staff Yes Redwood City, CA The Port of Redwood City is an enterprise department of Redwood City. Operates a seaport, marina, park/recreation space, and property management functions. Bulk cargo movement like sand, gravel, and cement, with a presence in shipyards and marine repairs. 5-member Board of Port Commissioners, appointed by the City Council. Municipal/Port Staff Yes, citywide alignment and port specific. Stockton, CA Stockton Port District is an independent special district. Operates inland port and property management functions. Bulk cargo (agricultural, construction materials, autos) and serves as a major food processing/distribution hub. 7-member Board of Commissioners; 4 appointed by the City of Stockton and 3 by San Joaquin County. Municipal/Port Staff Yes West Sacramento, CA Sacramento-Yolo Port District is an independent special district. Operates an inland port and property management functions. Bulk cargo including agricultural, industrial, and heavy equipment. 5-member Commission. West Sacramento City Council appoints 4, Yolo County Board of Supervisors appoints 1.

Admin and property management only by Port/Municipal Staff. SSA Marine (private) operates terminal per an agreement. Yes, included in citywide plan.

Portland, OR Port District authorized by state legislation. Operates an airport, marine terminals, cruise terminal, marina, park/recreation space, and property management functions. Containerized goods, automobiles (244,934 reported imported in 2022), and grain. 9-member Board of Commissioners. Appointed by the Governor and approved by the State Senate. Municipal/Port Staff Yes Everett, WA The Port of Everett is an independent special purpose district. Operates a seaport, marina, park/recreation space, and property management functions. Bulk cargo movement (wood chips, logs, steel), aerospace, and houses paper mills and wood processing facilities. 3-member commission, elected by district. Municipal/Port Staff Yes Bellingham, WA The Port of Bellingham is a special purpose municipal corporation organized under the State of Washington Port Laws. Operates an airport, marine terminals, cruise terminal, marina, park/recreation space, and property management functions.

Cruise terminal, bulk cargo movement (coal, wood chips, steel) and houses oil refineries and chemical plants. 3-member commission, elected by voters within Whatcom County. Municipal/Port Staff Yes Olympia, WA The Port of Olympia is an independent special purpose district. Operates an airport, marine terminals, park/recreation space, and property management functions. Bulk cargo movement (wood chips, logs, gravel) and houses seafood processing facilities. 5-member commission, elected by voters within Thurston County. Municipal/Port Staff Yes

15 Note 1: Maintenance roles in par1cular overlap in some instances from mari1me to avia1on maintenance. For example, the Port of Portland has only two dedicated maintenance staﬀ for its seaport but u1lized maintenance staﬀ as needed from the avia1on division of the port. Another example is the Port of Bellingham, who has maintenance division that serves both the seaport and airport. Note 2: Unless otherwise indicated, ﬁgures exclude purely administra1ve/overhead staﬀ such as human resources and ﬁnance.

Figure i.2: Peer Ports – Budget and Staﬃng
Port Name
Opera3ng Revenue Budget From Mari3me & Non-Avia3on Leasing Func3ons (FY 2023–24) Grant Revenue Budget From Mari3me & Non-Avia3on Leasing Func3ons (FY 2023–24) Property Tax Revenue Budget (FY 2023–24) Total Filled Posi3ons at Port For Any Func3on (as of January 2024) Filled Posi3ons for Mari3me Func3ons (as of January 2024) (1) Of These Posi3on How Many Perform Maintenance Work? (2) Richmond, CA $10.5 million $1.0 million None 3 *Two positions are only parttime at Port 3 *Two positions are only parttime at Port 0 Benicia, CA Not public Not public None Not public Not public Not public Hueneme, CA $24.3 million $20.2 million None 25 15 1 Humboldt Bay, CA $10.2 million $3.1 million None 11 11 6 Oakland, CA $180.2 million $17.7 million None 550 *budgeted 74 *budgeted 51 *budgeted Redwood City, CA $10.1 million $0.5 million None 14 12 1 Stockton, CA $69.8 million $16.3 million None 21 15 2 West Sacramento, CA $3.4 million (FY 2022 audited actual) None None 2.1 Admin and property management only, SSA Marine operates terminal.

2.1 Admin and property management only, SSA Marine operates terminal. 0 Municipal/Port staff dedicated to Port maintenance.

Portland, OR $46.5 million None $15.5 million *For Port overall including airport 604 10 2 *Dedicated to serving Port’s marine division, but marine division uses staff resources from airport and other divisions. Everett, WA $48.6 million $10.7 million $5.9 million *For Port overall including airport 54 23 0 Bellingham, WA $25.5 million $1.0 million $8.0 million *For Port overall including airport 131 51 27 Olympia, WA $12.3 million $4.6 million $7.9 million 50 26 12

16 Findings Finding 1: Port Strategic Plan Strategic Planning as an Organiza3onal Impera3ve The Port of Richmond’s lack of a formally ra@ﬁed strategic plan signiﬁcantly impairs its capacity for long-term planning and undermines eﬃcient priori@za@on and decision-making processes. Such plans are founda@onal elements for ports and organiza@ons generally. A strategic plan crystallizes a port's vision, delineates its direc@on, and lays the groundwork for decision-making. This instrument is pivotal in naviga@ng intricate opera@onal, ﬁnancial, and environmental challenges. Historical AFempts and Background Historically, discrete strategic objec@ves were interwoven within the City's annual budget documents from Fiscal Years 2009–10 through 2020–21 but were not perpetuated. A "Strategic Business Plan," ini@ated by the Port Director in 2007, was not adopted by the City Council at that @me and has not been revived according to subsequent records. The San Francisco Bay Area Seaport Plan and applicable zoning restric@ons should be used to guide the development of a strategic plan for the Port.3 The more recent Green Blue New Deal by the City Council may also inﬂuence the Port's future direc@on; however, it is yet to be synthesized into a holis@c strategic framework for the Port. Consequences of the Strategic Void The void of a strategic plan carries cri@cal implica@ons. It casts ambiguity over investment decisions in the Port’s infrastructure, which is already manifes@ng in the physical condi@on of the Port’s assets. The City’s ﬁnancial records show that the Port had an accumulated deprecia@on of $63.0 million, overshadowing the assets' current book value of $24.5 million.4 This indicates a severe underinvestment in maintenance and moderniza@on (see further discussion of Port maintenance in Finding 3). The audit team's tour of the Port facili@es on July 24, 2023, anecdotally reinforces this, as we observed visible signs of deteriora@on and disrepair in various parts of the Port, as illustrated in Figure 1.1. The condi@on of Port facili@es underscores the urgency for a strategic plan to priori@ze and allocate investments eﬃciently and sustain the Port's ﬁscal viability and community economic support. 3 San Francisco Bay Area Seaport Plan. San Francisco Bay Conserva%on and Development Commission. November 2023. hPps://www.bcdc.ca.gov/seaport/seaport-plan.pdf. Accessed on February 7, 2024. 4 Calcula%on includes ﬁxed and capital assets and excludes land owned by the Port.

17 Figure 1.1: Photos of Visibly Deteriora?ng Infrastructure at the Port

Source: Image taken by audit team on July 24, 2023.

18 Staﬀ Decision Making and Tenant Selec3on The strategic vacuum has tangible repercussions on tenant selec@on and lease nego@a@ons, vital to securing long-term occupancy (see Finding 5). Furthermore, without a strategic plan, the Port is poten@ally disadvantaged in adrac@ng and retaining tenants that align with the City’s goals for the Port. The Port’s recent leasing history, primarily comprised of short-term agreements, reﬂects the absence of strategic guidance during a period of leadership vacancy. While short-term leases oﬀer ﬂexibility in the absence of a strategic plan, they neglect the beneﬁts of enduring tenancies, which include tenant-driven asset improvements. For example, between the years 2021 to 2023, the Port signed nine new leases and extensions of exis@ng leases. • One lease agreement was for a year term with op@ons for ﬁve one-year extension op@ons. • Six lease agreements for ﬁve-year terms, some with one year extension op@ons. • One agreement was for a ten-year term, with two ﬁve-year extension op@ons. • One agreement for a 25-year term, with four ten-year extension op@ons. In total, seven of the nine agreements were for roughly ﬁve years or less, and two were for more than ten years. These short-term leases were made in a period when the Port’s Director posi@on was vacant and without a strategic plan to guide staﬀ. While these leases represent a variety of proper@es and land use types, it illustrates that the Port has not been well-posi@oned to make long term leases. Longer leases are oren more beneﬁcial as they give tenants the security and incen@ve to invest in the improvement of assets, enhancing the value and func@onality of the Port's infrastructure. Grant Funding Opportuni3es at Risk The lack of a strategic plan diminishes the Port's compe@@veness for federal grants. Grants from en@@es like the Mari@me Administra@on (MARAD) and the Environmental Protec@on Agency (EPA) oren priori@ze projects that align with a clear strategic vision and demonstrate poten@al for long-term viability. Without a strategic plan, the Port's ability to present projects that meet these criteria is hampered. In 2022, for example, signiﬁcant funds were allocated by MARAD and the EPA for port improvements under various programs. The Port's inability to showcase a strategic alignment with such funding opportuni@es means forfei@ng the chance to leverage these resources for development and improvement projects.

19 Recommenda3ons The cumula@ve eﬀect of these issues is a port that operates below its poten@al and misses opportuni@es to beder serve the City and community. The following recommenda@ons would ensure the Port has a strategic plan that is fully adopted, and then revisited itera@vely therearer. We recommend that the Richmond City Council: 1.1 Provide direc@on to the Port on its long-term strategic goals for the Port. This will beder inform Port staﬀ as they develop a proposed strategic plan. 1.2 Formally adopt a proposed Port strategic plan developed by Port staﬀ. This will help give Port staﬀ clear direc@on. We recommend that the Port of Richmond: 1.3 Develop and present a proposed strategic plan to the City Council. This will provide the City Council with a proposed plan to review that is developed using the knowledge of its Port staﬀ. 1.4 Adopt a procedure to review the strategic plan with the City Council at least every ﬁve years. During the review staﬀ should include any proposed revisions to the strategic plan to be considered and possibly adopted by the City Council at that @me.

20 Finding 2: Port Procedures The Port is responsible for collec@ng $10.5 million of annual opera@ng revenue, the majority of which is collected from 14 lease agreements with tenants.5; 6 It also manages mari@me facili@es, infrastructure, land, and other assets, valued at $29.5 million, that are subject to regional, state, and federal regula@ons. 7 However, the Port has no wriden procedures that address these or its other key func@ons. Prior procedures may have existed, but they have not been maintained and are presumed lost. Departments Required to Maintain Procedures According to the City’s Administra@ve Manual, departments are responsible for “wri@ng and maintenance of departmental opera@ng procedures” that are dis@nct from the overall City policies.8 The City’s Administra@ve Manual does not address several ac@vi@es speciﬁc to the Port, such as revenue collec@on from leases, managing tenant occupied property, and mari@me opera@ons – meaning the Port is responsible for developing and maintaining such procedures. Furthermore, overall industry best prac@ces, such as from the Government Finance Oﬃcers Associa@on as well as the Interna@onal Organiza@on for Standardiza@on, recommend the documenta@on of policies and procedures for key func@ons of an organiza@on. Lack of Procedures Has Signiﬁcant Impact During Staﬀ Turnover The lack of procedures has the most signiﬁcant impact when there is staﬀ turnover, such as the sudden death of the former Port Director in 2020, and departures of long-term staﬀ around the same @me. Prior staﬀ may have had a good understanding of implicit procedures that were verbally communicated to them previously, but with no wriden procedures this informa@on is lost. This places the Port’s $10.5 million of annual opera@ng revenue at greater risk of disrup@on, risks the maintenance of the Port’s $29.5 million of infrastructure assets, and could expose the Port and City to greater compliance risk. 5 Fiscal Year 2021–22 audited ﬁnancial statements. 6 As of August 2023. 7 Total asset value (including land assets) as of Fiscal Year 2022–23 according to calcula%ons provided by the City’s ﬁnance department. 8 City of Richmond Administra%ve Manual 101.1, Departmental Opera%ng Procedures.

21 Recommenda3ons The following recommenda@ons would help the Port reduce the risk of ins@tu@onal knowledge loss due to staﬀ turnover, ensure cri@cal Port func@ons are performed consistently, and ul@mately help the Port beder protect its assets and opera@ng revenue. We recommend that the Port of Richmond: 2.1 Develop and maintain wriden procedures for its cri@cal opera@ng func@ons. 2.2 Develop and document a backup plan, or succession strategy, for cri@cal roles and responsibili@es at the Port.

22 Finding 3: Maintenance Staﬀ and Deferred Maintenance Our audit has uncovered signiﬁcant ineﬃciencies in the maintenance of the Port's assets, leading to unplanned ﬁnancial support from the City's General Fund. These issues pose a risk to the Port’s asset value and emergency preparedness, and ul@mately its long-term opera@onal viability. Deferred Maintenance Trends The Port reported a current book value of its assets at $24.5 million for FY 2022–23, overshadowed by accumulated deprecia@on totaling $63.0 million.9 This discrepancy signals a crucial demand for extensive maintenance to sustain asset value. Despite the City’s Capital Improvement Plan (CIP) alloca@ng $10.1 million for FY 2023–24 to 2027–28, the funding falls short of bridging the gap between deprecia@on and the current value, indica@ng persistent underinvestment.10 Public Works' Role in Port Maintenance The Port's CIP oversight has historically been managed by Port staﬀ, and most recently the Port Marke@ng/Opera@ons Manager performed those tasks. However, the City's Public Works Department has been responsible for day-to-day maintenance, ranging from road and fence repairs to electrical and plumbing work. Despite the Public Works Department's cri@cal role, they report that their current system lacks a robust mechanism for accurately tracking, repor@ng, or billing maintenance hours, which hampers ﬁnancial transparency and accountability. Reported Understaﬃng Could Be Driving Deferred Maintenance Public Works reports that it faces a staﬃng shortage, hindering their capacity to meet the Port’s maintenance demands, sugges@ng a link between personnel scarcity and growing deferred maintenance. This under-resourcing raises the risk of future costs for repair and replacement, threatening the integrity and func@onality of Port assets. Port Financial Subsidiza$on Risks The Port is structured as an Enterprise Fund. The lack of tracking and billing for Public Works Department @me to the Port has rendered it impossible to determine the extent to which the General Fund is subsidizing the Port Enterprise Fund with unbilled maintenance work. Such subsidiza@on contradicts common local government prac@ce, where enterprise funds like the Port typically strive for self-suﬃciency. Taking steps to track work performed through @me and materials spent on behalf of the Port, even using a spreadsheet, would help prevent use of General Fund money to support the Port. While the Port beneﬁts from the inadvertent subsidy, it may also be receiving inadequate services due to Public Works’ staﬃng constraints. 9 Calcula%on includes ﬁxed and capital assets and excludes land owned by the Port. 10 The CIP pertains primarily to large-scale ac%vi%es and is dominated by projects like the removal of Terminal 4’s wharf, electriﬁca%on of Terminals 7 and 8, and rou%ne dredging of the Port’s waterways.

23 Historical Context: The Port Maintenance Manager Un@l ﬁscal year 2014–15, the Port employed a Maintenance Manager responsible for minor maintenance and coordina@on of external vendors and Public Works tasks. The discon@nua@on of this role is not clearly understood by current staﬀ but reinsta@ng it could relieve some of the Public Works Department's burden. Hiring a Maintenance Manager will also provide the Port with a dedicated posi@on who is knowledgeable about the Port’s assets and able to perform and manage day-to-day maintenance, and ul@mately beder protect and maintain the Port’s assets. This will increase Port opera@ng costs, but these costs can be incorporated into future external rates that provide the Port with self-suppor@ng revenue. Emergency Preparedness Gaps The City’s 2016 Emergency Plan lists the Port Maintenance Manager or the Chief Harbor Master as the alternate to the Port Director. As of January 2024, neither alternate posi@on exists. If called upon, per the Emergency Plan, the alternate would be expected to: “coordinate the immediate survey of Mari@me areas with ini@al assessment of damaged and undamaged areas and equipment. Restore Port condi@ons to normal as rapidly and eﬃciently as possible. Support emergency response and recovery eﬀorts for the Port of Richmond, coordina@ng any resources that may become available to support the overall city response.” Presumably, another posi@on at the Port could ﬁll this role in an interim capacity, but the vacancies add risks to the Port and City during an emergency since either a Port Maintenance Manager or the Chief Harbor Master would have the most familiarity with the Port’s infrastructure and systems. Comprehensive Facility Condi3on Assessment Needed Our analysis of accumulated deprecia@on and current asset values are largely accoun@ng calcula@ons that approximate the condi@on of assets and any reinvestment in them. For a more precise analysis, we recommend that arer a strategic plan is adopted, as recommended in Finding 1 of this audit, that the Port perform a comprehensive facility condi@on assessment of all major Port assets. Such an assessment would then be paired with the adopted strategic plan to inform future spending in the Capital Improvement Plan. Recommenda3ons Our recommenda@ons below would address these problems by helping to safeguard against escala@ng deferred maintenance and restoring a cri@cal component of the Port's emergency response structure. We recommend the Richmond City Council: 3.1 Appropriate funds to hire a Maintenance Manager within the Port. If Recommenda,on 3.1 is adopted: 3.2 Direct the Port to consider all increased costs associated with the Maintenance Manager posi@on and incorporate them when seCng future fees, tariﬀs, and lease rates.

24 We recommend the City of Richmond Public Works Department: 3.3 Develop an agreement with the Port, or an outside vendor managed by the Port, with a known billing rate and set service-level expecta@ons for work performed, to account for the remaining work, such as road repairs, that cannot be performed by the Port’s Maintenance Manager (see Recommenda@on 3.1). 3.4 Develop an interim tracking and billing method, such as tracking work performed using a spreadsheet, to recoup @me and materials spent on behalf of the Port. We recommend the Port of Richmond: 3.5 Perform a comprehensive facility condi@on assessment of all major Port assets arer a strategic plan has been adopted (see Finding 1).

25 Finding 4: Finance Staﬀ and Financial Monitoring According to the City of Richmond FY2019–2020 Adopted Opera@ng Budget, the mission of the Port is as follows: The Port of Richmond is responsible for the management of all City-owned marine terminals. The Port Department performs its func@on through two divisions: Administra@on and Opera@ons. Port revenue is generated through cargo import/export and property lease agreements. The Port of Richmond is commided to preserving its historic past, integra@ng with the community, oﬀering public access, and reducing environmental impacts.11 Financial Trends at Port Don’t Align With Its Mission Financial trends from Fiscal Year 2012–13 to 2021–22 show a misalignment with the Port’s mission. Expenses have diminished annually by an average of 2.0%, while revenue has grown by a modest 1.8% annually. 12 Although on the surface, reduced expenses may seem beneﬁcial, they have not kept pace with the Bay Area’s Consumer Price Index inﬂa@on rate of 3.1% annually. Consequently, revenue growth has lagged approximately one-third behind the regional inﬂa@on rate. This shorwall is cri@cal given the Port’s revenue-genera@ng mission. Moreover, the declining expenses may indicate insuﬃcient investment in opera@onal maintenance, poten@ally undermining the Port's capability to oﬀer community beneﬁts and maintain infrastructure integrity (see Figure 4.1 for ﬁnancial trends). 11 City of Richmond FY 2019–2020 Adopted Opera%ng Budget. Port of Richmond Mission. hPps://www.ci.richmond.ca.us/DocumentCenter/View/51243/Adopted-FY2019-2020-Opera%ng-Budget. Accessed on February 7, 2024. 12 The calcula%on of opera%ng expenses excludes interest payments from the Port’s debt. Since, as of January 2024, the debt has nearly matured, these amounts have declined in the most recent years. Income earned from interest is similarly excluded from opera%ng revenue per accoun%ng standards.

26 Figure 4.1: Slow Revenue Growth and Declining Opera?ng Expenses Source: Analysis of the City’s Annual Comprehensive Financial Reports. Note 1: The calcula%on of opera%ng expenses excludes interest payments from the Port’s debt. Since, as of January 2024, the debt has nearly matured, these amounts have declined in the most recent years. Income earned from interest is similarly excluded from opera%ng revenue per accoun%ng standards. Finance Department Performs Day-To-Day Accoun3ng for Port but Does Not Monitor The Finance Department is currently performing the Port’s daily ﬁnancial opera@ons and general accoun@ng. However, the department has reported that due to staﬃng limita@ons, comprehensive ﬁnancial monitoring is beyond its current scope. This is at odds with the recommenda@ons of the Government Finance Oﬃcers Associa@on (GFOA), which stresses the necessity for regular ﬁnancial monitoring and organiza@onal accountability structures.13 Presently, no evidence suggests that such monitoring ac@vi@es of the Port are being conducted by the Finance Department or other City departments. 13 Government Finance Oﬃcers Associa%on, “Best Prac%ces: Budget Monitoring”, hPps://www.gfoa.org/materials/budget-monitoring. Accessed March 5, 2024. and Government Finance Oﬃcers Associa%on, “Capital Project Monitoring and Repor%ng”. hPps://www.gfoa.org/materials/capital-project-monitoring-and-repor%ng. Accessed March 5, 2024. $-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
2012-132013-142014-152015-162016-172017-182018-192019-202020-212021-22 Operating RevenueInterest IncomeOperating ExpensesInterest Expenses on Debt Operating Revenue grewannually by an average of 1.8% per year.(1) Operating expenses declined annually by an average of 2.0% per year. (1)

27 Port Staﬀ Previously Included a Finance Manager Previously, un@l FY 2014–15, the Port employed a Finance Manager who not only performed general accoun@ng tasks but also provided in-depth ﬁnancial oversight and was integral to the Port’s opera@ons. The elimina@on of this role has likely impeded the Port’s ﬁnancial planning capabili@es and restricted the Finance Department's capacity to conduct thorough ﬁnancial trend monitoring, since it assumed all the day-to-day ﬁnancial du@es for the Port. Consequences of Neglected Financial Oversight The absence of diligent ﬁnancial planning and monitoring is evident in the Port’s subpar revenue performance, which also indicates a lack of strategic management in seCng fees and lease rates. Addi@onally, infrequent grant awards in the past decade may also point to a deﬁciency in ﬁnancial planning necessary for successful grant applica@ons and administra@on. Limited Support for Grant Applica$ons and Administra$on In the past decade before January 2024, the City’s ﬁnancial records show that the last signiﬁcant grant awarded to the Port occurred in 2013 for $4.3 million. Subsequently, there is a nearly ten-year gap un@l July 2022, when the Port was awarded a $1.0 million grant. Financial planning is oren an important component of grant applica@ons, and when awarded, most grants require ﬁnancial repor@ng speciﬁc to the grant award and project. Document Management Concerns As men@oned in the report Introduc@on, this audit encountered challenges with record retrieval. Of the 41 backup ﬁnancial documents requested from our random and judgmental samples, ﬁve could not be located. One document from FY 2021–22 the Finance Department had expected to ﬁnd housed at City Hall but could not locate. The other four documents, from FY 2017–18 and FY 2018–19, were expected to be stored at an oﬀsite facility, visited by the audit team on November 28, 2023. Two of the documents were not found arer a careful search through the boxes indicated in the Finance Department’s records. The other two remaining documents were meant to be stored in a single box, but that box could not be located at the storage facility. The Finance Department has not been able to locate these records, or the missing box, since the November 2023 auditor search. Since our audit was focused on the Port and any associated ﬁnancial informa@on, we did not assess the full document reten@on process of the Finance Department on a Citywide basis. Thus, we do not know if this is a larger more systemic Citywide problem. We recommend that the Finance Department inves@gate its document reten@on prac@ces for both onsite and oﬀsite storage, and ensure its prac@ces are eﬀec@ve.

28 Recommenda3ons By implemen@ng these recommenda@ons, the Port can strengthen its ﬁnancial management, and beder fulﬁll its mission for the beneﬁt of the community and the environment. We recommend that the Richmond City Council: 4.1 Appropriate funds to hire a Finance Manager, a posi@on that was previously held at the Port un@l Fiscal Year 2014–15. If Recommenda,on 4.1 is adopted: 4.2 Direct the Port to consider all increased costs associated with the Finance Manager posi@on and incorporate them when seCng future fees, tariﬀs, and lease rates. We recommend that the City of Richmond Finance Department: 4.3 Inves@gate and review the consistency of its document reten@on prac@ces for both onsite and oﬀsite storage. If Recommenda,on 4.1 is adopted: 4.4 Use the addi@onal staﬀ capacity gained by the Port adding a Finance Manager to perform comprehensive and rou@ne budget and ﬁnancial monitoring of the Port that is in line with the Government Finance Oﬃcer’s Associa@on’s best prac@ces.

29 Finding 5: Lease Solicita=on, Selec=on, and Ve@ng Process No Policies or Procedures Regarding Leasing Port Proper3es There is a signiﬁcant deﬁciency at the Port regarding its lack of documented procedures (see Finding 2). The following is a subset of that topic, but with speciﬁc implica@ons for the lack of a deﬁned process for solici@ng, selec@ng, and veCng tenants who will lease proper@es from the Port. There are also no comprehensive Citywide policies that directly address these ac@vi@es, though some Citywide policies could apply. For example, the City’s policy AP 109 Non-Collusion with Bidder might apply to aspects of the solicita@on process for Port tenants. Policy AP 522 Purchasing Policy might also apply, but it focuses on the acquisi@on of goods and services, not the acquisi@on of tenants to lease Port or City property. Even with the lack of speciﬁc policies and procedures, the City and the Port are subject to state laws, such as the state’s prohibi@on against the gir of public funds, and other ethics requirements regarding use of public property. Port Lacks Documenta3on About How It Solicited, Selected, and VeFed Tenants According to Port records, the Port entered into ten new lease agreements between 2013 and 2023, as depicted in Figure 5.1. Our audit eﬀorts to unearth documenta@on pertaining to how these tenants were solicited, scored, and veded turned up only a few digital or paper records. This lack of documenta@on is concerning and suggests an absence of due diligence and/or transparency in the leasing process.

30 Figure 5.1: Lease Agreements Signed Between 2013 and 2023 Have Almost No Suppor?ng Documents Tenant Name Property Lease Start Date Solicita5on Process Selec5on Process Ve7ng Process Addi5onal Notes Red Oak Victory Por1on of Basin #6A and appurtenant dock space. 5/1/2013 Ship had been berthed at Port prior to agreement. Selec1on directed by City Council. Directed by City Council. No records prior to lease start date. Business license issued (9/3/2015) aYer start of lease Riggers LoD Wine Company Approximately 21,000 square feet of the Rigger's LoY Building and approximately 15,000 square feet of dockside space adjacent to the Rigger's LoY Building located at 1325 Canal Boulevard, Richmond. 12/16/2014 No records of solicita1on process. No records of selec1on process. Agreement approved by City Council on Dec 16, 2014. No records prior to lease start date. Business license issued (3/4/2016) aYer start of lease.

RJJ Resource Management Corp Terminal 3, at 1411 Harbour Way South, Richmond, CA 94804. 7/1/2015 No records of solicita1on process. No records of selec1on process. Agreement approved by City Council on Jun 2, 2015. No records prior to lease start date except issuance of business license.

Dutra Group Signed Lease Agreement Port of Richmond, Pt. Potrero Marina Terminal. 6/1/2017 No records of solicita1on process. No records of original selec1on process. City Council Approved amendment in 2021. Port reviewed required insurance prior to lease term and issue business license. Tenant also a vendor to the City.

NRC Environmental Service, Inc Southside por1on of Basin 3 and appurtenant dock. 10/1/2017 No records of solicita1on process. No records of original selec1on or approval process. Port reviewed required insurance prior to lease term and issue business license. Tenant also a vendor to the City.

Sause Bros, Inc (1) Terminal 3 Machine Shop and adjacent berth. 10/1/2017 No records of solicita1on process. No records of original selec1on process. No records. Business license issued (5/21/18) aYer start of lease. Nematode Holdings, LLC 2101 Western Drive, at Terminal 4. 7/1/2020 No records of solicita1on process. No records of original selec1on process. Port reviewed required insurance and business license prior to lease term.

Terminal Three Partners, LLC Terminal 3, at 1411 Harbour Way South. 12/15/2020 Records indicated RFP was adver1sed on City's bid plaeorm, but no records of bids received were retained.

No records of selec1on process. Agreement approved by City Council on Dec 15, 2020. Staﬀ reported to Council states “T3 Partners submiged a 1mely response to a formal request for proposals (RFP)” but no discussion of other proposals or selec1on criteria.

No records. Business license issued (12/31/2020) aYer start of lease.

Point San Pablo Harbor, Inc Property located at Terminal 4. 6/1/2021 No records of solicita1on process. No records of selec1on process. Agreement approved by City Council on Jun 15, 2020. Port reviewed required insurance and business license prior to lease term. City Council approved aYer lease term began. Source: GPP AnalyHcs review of City and Port records provided by City staﬀ. Note 1: Sause Bros, Inc. is now a subtenant with no direct lease agreement with the Port.

31 Solicita$on An expected standard prac@ce would be the existence of records demonstra@ng the adver@sement and solicita@on of bids for tenancy. We discovered a singular instance of an RFP in 2020 that resulted in a property with a signed leased agreement. Even for that one example, the Port did not retain the bids they received or details of the selec@on process. We did see evidence of some RFPs related to other Port proper@es adver@sed on the City’s bid solicita@on plaworm, but none of the proper@es adver@sed were proper@es that resulted in signed lease agreements at the @me of the audit. These included the General Warehouse, the Cafeteria Building (Building 23), and Basin 1 at the Point Potrero Marine Terminal. We also found some records of unsolicited lease requests from companies and individuals interested in leasing space from the Port. However, the Port lacks any procedures about how to address these requests. The documents related to these requests were varied and lacked suﬃcient detail to understand the Port’s decision-making process. Selec$on The absence of documenta@on from public solicita@ons leads to an ambiguity in how tenants are evaluated and selected among other bids and proposals. This increases risk to the City of allega@ons of fraud, collusion, or abuse. The lack of transparent selec@on criteria also hampers the ability to determine if tenant selec@on is op@mized for the Port and City’s beneﬁt. We could not ﬁnd documenta@on at the Port regarding how the lease rates were calculated or how they compare to similar commercial real estate in the City or region. Without such documenta@on it is unclear how lease terms were established and if they are appropriate. There was one excep@on, where we found documenta@on of one property that was compared to the commercial real estate values, but this occurred several years arer the lease term began. VeMng Post-selec@on veCng prac@ces are oren absent, as indicated by the frequent lack of essen@al documenta@on, such as IRS form W-9, City business licenses, and proof of insurance, which should be conﬁrmed in accordance with the City’s Purchasing Policy and terms of the lease agreements. The Port did have records of some of these documents collected for some, and others only arer the lease agreements were signed. There are other veCng ac@vi@es the Port could perform that would reduce risks to the City. Some examples include collec@ng and reviewing any required permits, proof of any state opera@ng licenses or permits, credit checks of the poten@al tenants, or reference checks with the tenants’ prior landlords. Performing these checks could help the Port ensure compliance with legal requirements and poten@ally help prevent delinquent tenant payments.

32 Other Problems In one instance we found a lease agreement that was approved by the City Council on a date arer the lease’s term start date. In the Port’s records we found an internal document sta@ng that “Legal advised Port director of execu@ve authority for a one-year lease”. It seems likely that since the lease was only projected to generate $8,400 per year, that it was interpreted to fall under the $10,000 threshold requiring City Council’s approval according to the City’s Procurement Policy. Another problem is that two of the Port’s tenants were awarded lease agreements while they were also vendors to the City. This circumstance may be appropriate, but there is no documenta@on about the process to award the lease agreements, and the Port is not able to demonstrate that it ensured that there was no collusion or conﬂicts of interest in these rela@onships or in the process of gran@ng either lease. Surplus Property Authority A 2011 audit of the Port iden@ﬁed that some lease agreements of Port property are with the Surplus Property Authority of the City of Richmond. At the @me, the audit recommended that the City “verify the status and purpose of the Surplus Authority” and either disclose more informa@on about it or dissolve it. No Port or City oﬃcials were able to determine the purpose and nature of the Surplus Property Authority during our audit. The unclear role and purpose of the Surplus Property Authority could pose poten@al risks by adding to the inconsistency of lease agreements at the Port. As of 2023, the records provided to us by the Port indicate that 16 lease agreements were through the Surplus Property Authority, the most recent one signed in June of 2023. The City should determine the nature of the Surplus Property Authority and, as recommended in 2011, either disclose more informa@on about it or dissolve it. Recommenda3ons The recommenda@ons below will help the City and Port reduce the risk of viola@ng City policies and state laws, and help it demonstrate that lease agreements are awarded in the best interest of the Port, the City, and the community. We recommend that the Port of Richmond: 5.1 Write and implement Port-speciﬁc procedures regarding how it solicits, selects, and vets tenants for Port proper@es. The procedures should include appropriate reten@on of suppor@ng documents such as all proposals received, the selec@on criteria and scoring, and all documents used to vet the accuracy of the tenant’s informa@on. We recommend that the Richmond City Council: 5.2 Determine the nature of the Surplus Property Authority and, as recommended in the 2011 audit of the Port, either disclose more informa@on about it or dissolve it if no informa@on exists.

33 Finding 6: Lease Volume Guarantee Veriﬁca=on and Documenta=on The Port's 2004 lease agreement with Auto Warehousing Co. (AWC) and its subsequent amendments, includes a minimum annual guarantee of vehicle units AWC would process. The Port lacks veriﬁca@on and suppor@ng documenta@on for the number of vehicles AWC has processed. This guarantee was cri@cal to ensuring that the revenue generated by the agreement oﬀsets bond payments that were due between ﬁscal years 2008–09 to 2023–24. AWC Lease and Bond Background Minimum Annual Guarantee and Revenue Share In 2004, the Port leased property to AWC under a 15-year lease agreement. AWC receives, stores, and ships automobiles entering the United States. The lease s@pulated the processing of 85,000 vehicles annually from American Honda Motor Company, Inc., a volume intended to secure steady wharfage and related fee revenues for the Port.14 An addi@onal revenue-sharing agreement was in place for vehicles that AWC processed from other companies, though these did not directly contribute to the minimum guarantee. 2009 Amendment and Bond Issuance The lease amendment in 2009, which accompanied a bond issuance, increased the minimum annual guarantee to 145,000 vehicles. This change was presumably intended to secure revenue surpassing the bond's annual debt service, ensuring the lease covered the cost of the bonds. According to the debt’s issuing documents, the bond proceeds were used to pay for warehousing facili@es, and improvements to rail infrastructure, and to “facili@es owned by BNSF” who operates the rail connec@ng the Port. 2019 Bond Reﬁnancing and 2020 Lease Amendment In 2019, the City reﬁnanced the remainder of the 2009 Bonds. The reﬁnanced bonds paid a lower interest rate and therefore a lower annual debt service. In 2020, the Port and AWC amended the lease to lower the minimum annual guarantee to 85,000 arer the reﬁnanced bonds matured in ﬁscal year 2023–23, and when AWC would have an op@on to extend the lease for another ﬁve years. Arer the bonds mature in ﬁscal year 2023–24, and if AWC meets the minimum annual guarantee of 85,000, we es@mate that based on current rates AWC would generate $3.4 million annually at minimum for the Port each year. Minimum Annual Guarantee Paid by AWC Despite AWC not mee@ng the minimum guaranteed vehicle volume, it fulﬁlled its ﬁnancial obliga@ons to the City by paying the shorwall. City ﬁnancial records indicate that revenue from AWC generally exceeded the annual debt service, contribu@ng to addi@onal revenue streams for the Port. See Figure 6.1 for a summary of these events and calcula@ons. 14 An amendment in 2011 added Subaru as one of the companies in the minimum annual guarantee calcula%on and included provisions for AWC to fund some tenant improvements. 34 Figure 6.1: Lease and Bond Timeline Summary
Fiscal Year
Minimum Annual
Guarantee
(number of vehicle
units)
Honda and Subaru
Vehicle Units
Processed
(according to Port
records reported
by AWC) (1)
Total Amount Paid By
AWC to City and Bond
Trustee (2)
Total Annual Debt
Service Payments Due
2003–04 85,000 No records available No records available none 2004–05 85,000 No records available No records available none 2005–06 85,000 No records available $2,827,750.00 none 2006–07 85,000 No records available $2,564,484.00 none 2007–08 85,000 No records available $2,301,471.00 none Lease Amended in 2009
2008–09 145,000 No records available $1,591,579.00 none 2009–10 145,000 No records available $1,082,162.00 $3,090,870.17 2010–11 145,000 71,849 $5,104,233.00 $3,282,340.00
2011–12 145,000 63,267 $5,110,927.13 $3,282,340.00
2012–13 145,000 38,106 $6,009,992.86 $5,687,340.00
2013–14 145,000 30,562 $6,878,108.75 $5,580,825.00
2014–15 145,000 30,003 $6,227,285.97 $5,581,575.00
2015–16 145,000 50,028 $5,929,429.55 $5,582,487.50
2016–17 145,000 50,245 $6,372,468.85 $5,579,937.50
2017–18 145,000 47,674 $6,445,029.07 $5,577,650.00
2018–19 145,000 45,196 $7,087,204.90 $5,578,937.50
Lease amended in 2019 (lowers annual guarantee aSer 2024).

Bonds reﬁnanced in 2019 (lowered debt service).
2019–20 145,000 14,240 $7,113,557.33 $4,819,405.56 2020–21 145,000 8,562 $7,032,098.28 $4,683,300.00 2021–22 145,000 4,942 $6,914,214.42 $4,680,500.00 2022–23 145,000 12,444 $7,324,132.73 $4,686,500.00 2023–24 145,000 In-progress In-progress $4,263,000.00
Bonds mature in 2024. Lease with AWC has opHons to renew for two ﬁve-year terms remaining.

If extended, the 2019 revision to the lease agreement lowers the minimum guarantee to 85,000 aSer 2024.

Source: GPP AnalyHcs analysis of Port records, ﬁnancial records, and bond issuance records.

Notes: (1) Other vehicles imported by AWC, but not counted in the minimum annual guarantee are not tracked by the Port or reported by AWC. However, the Port reports that AWC processed a total of 91,125 vehicles (including Honda and Subarus) in ﬁscal year 2023 but they were unable to provide documenta%on to support this ﬁgure.
(2) This includes payments when minimum is deﬁcient and is net of revenue share paid back to AWC.

35 No Veriﬁca3on or Documenta3on The audit found no evidence that the Port adempted independent veriﬁca@ons of vehicle volume ﬁgures reported by AWC. The best documenta@on the Port had available was a ﬁle that AWC provided to the Port with vehicle volumes, and minimum annual guarantee calcula@ons. The Port's reliance on documenta@on provided by AWC, without suppor@ng evidence such as vessel manifests, raises concerns over the accuracy and veriﬁability of these cri@cal revenue-related ﬁgures. Veriﬁca$on Is Industry Best Prac$ce An industry best prac@ce for ports is the independent veriﬁca@on of reported cargo volumes to mi@gate the risk of inaccurate repor@ng and poten@al revenue discrepancies. This prac@ce is also true for virtually any type of organiza@on based on an accoun@ng prac@ce known as the three-way match, where items received are veriﬁed before they are paid. The Port could have signiﬁcantly strengthened the veriﬁca@on process by obtaining and reviewing corrobora@ve evidence such as vessel manifests or bills of lading, which would detail the number of vehicles transported and are required for customs clearance. These documents serve as a standard method of veriﬁca@on recognized globally, aligning with guidelines from the Interna@onal Mari@me Organiza@on (IMO) and customs authori@es. This method of veriﬁca@on would provide a more robust valida@on of the ﬁgures reported by AWC. While the poten@al for document falsiﬁca@on exists, the absence of any review process essen@ally places undue reliance on AWC's self-reported data. Crea@ng and implemen@ng a procedure of rou@ne document inspec@on would bring the Port's opera@ons in line with industry standards, provide a stronger assurance of revenue accuracy, and reduce the risk of fraud or errors from tenants reported ﬁgures.15 Low Staﬃng at Port Contributed to Lack of Veriﬁca$on Part of the reason this may not have been occurring could be due to the reduced of posi@ons within the Port, as discussed in Findings 3 and Finding 4 of this audit report. Furthermore, we don’t know for certain if veriﬁca@on prac@ces had occurred previously to the tenure of current Port staﬀ as the records may have been lost or misplaced. As implied in Finding 2, there are no known Port procedures that require veriﬁca@on or similar ac@vi@es. 15 There are cargo veriﬁca%on services and technologies available, but we recommend that the Port ﬁrst build a prac%ce of conﬁrming vessel cargo volume using common and widely available documents.

36 Recommenda3ons We recommend that the Port of Richmond: 6.1 Write and implement a procedure to verify all reported cargo volume that aﬀects revenue from lease agreements, wharfage fees, tariﬀs, or other fees that may be calculated by the volume of cargo. We recommend that the Richmond City Council: 6.2 Appropriate funds and approve the posi@ons recommended in Finding 3 and Finding 4 to help ensure that Port staﬀ have the capacity to carry out veriﬁca@on ac@vi@es.

37 Finding 7: Environmental Compliance and Lease Monitoring Environmental Regulator The San Francisco Bay Conserva@on and Development Commission (BCDC) is a California State planning and regulatory agency with regional authority over the San Francisco Bay, the Bay’s shoreline band, and the Suisun Marsh. Empowered through the McAteer-Petris Act and the San Francisco Bay Plan, BCDC is responsible for enforcing environmental standards and protec@ng the Bay's ecological integrity.16; 17 Monitoring Port Proper3es As of January 2024, ac@ve leases for Port of Richmond proper@es include an ar@cle on environmental maders covering tenants’ responsibili@es regarding hazardous materials, as well as safety precau@ons and stormwater pollu@on control. However, as the City of Richmond holds the land @tles to Port proper@es, BCDC considers the City as the legal en@ty poten@ally responsible for viola@ons at those proper@es. In this context, the Port ought to be able to demonstrate a good faith eﬀort to monitor Port proper@es for tenant compliance with the environmental requirements of their lease. Lack of Systema$c Monitoring of Port Proper$es However, during the auditors’ review they did not ﬁnd evidence that the Port systema@cally monitors tenants’ compliance with these requirements at Port proper@es. Contribu@ng factors to the lack of monitoring and documenta@on may be the lack of wriden policies and procedures for the key func@ons and responsibili@es of the Port, as well as insuﬃcient Port staﬃng levels (see Findings 3 and 4). The lack of monitoring for compliance poses a poten@al environmental, legal, and ﬁnancial risk to the City as the en@ty responsible for Port proper@es and compliance with environmental laws and regula@ons. Recommenda3ons We recommend that the Port of Richmond: 7.1 Include speciﬁc direc@on within their policies and procedures manual regarding inspec@ons/ monitoring of Port proper@es for tenant compliance with environmental clauses included in their leases as well as the San Francisco Bay Conserva@on and Development Commission policies (see Finding 2). 7.2 Document staﬀ inspec@ons/monitoring of Port proper@es for environmental compliance and other tenant ac@vi@es which may require a permit from the San Francisco Bay Conserva@on and Development Commission. 16 McAteer-Petris Act. hPps://www.bcdc.ca.gov/plans/mcateer_petris.html. Accessed on January 19, 2024. 17 San Francisco Bay Plan. hPps://toolkit.climate.gov/reports/san-francisco-bay-plan. Accessed on January 19, 2024.

38 Finding 8: Security at Port Facili=es Unique Mixed-Access Space The Port of Richmond is unique as a mixed-access space that is largely open to the public and includes industrial ac@vity, recrea@onal use, cultural resources, and oﬃce buildings. The Bay View Trail, used by pedestrians and cyclists for transit and recrea@on, wraps along the bay through the Port area. Visitors also access the Port to explore the Red Oak Victory World War II ship and museum and the Rosie the Riveter Na@onal Historical Park, which each provide a venue for educa@onal and historical exhibits that contribute to the area's cultural resources. One of the Port’s tenants, Riggers Lor Wine Company, oﬀers tas@ngs and special events along the bay next to the Red Oak Victory and the Port Administra@ve Building. Addi@onally, the road leading to the Port includes areas with less urban development and traﬃc, making it popular for joy riding and spinning donuts. This unique mixture of access and use makes security at the Port both a challenge and an important considera@on. Unleased Buildings Targets for Vandalism As of January 2024, the Port of Richmond has three unleased proper@es: Basin 1, the General Warehouse, and the Cafeteria Building. Each on these proper@es has been vacant for over six months. As per the Port’s ac@ve lease agreements, Port tenants are responsible for providing security for their leased spaces. Security of proper@es which are unleased and siCng vacant is the responsibility of the City of Richmond’s Port. In the case of the unleased General Warehouse, for example, the vacant building has been vandalized and damaged (see Figure 8.1 below). The situa@on is not too surprising because, according to the Richmond Police Department, abandoned/vacant buildings do tend to become targets for trespassing and vandalism. Figure 8.1: East Facade of the General Warehouse Building, July 24, 2023 Source: Image taken by audit team.

39 Increased Risk and Cost to City In the case of the General Warehouse, and other future unleased buildings, damage to the building may either 1) need to be repaired by the Port, 2) weaken lease nego@a@ons because of the upfront costs to a poten@al new tenant, or 3) delay the process of moving a new tenant into the building, which would increase the probability of addi@onal vandalism and damage. Each of these scenarios will increase costs to the City of Richmond. Calls for service to the Richmond Police Department regarding trespassing, vandalism, ther, etc. are also an addi@onal cost to the City. Furthermore, any accidents that might occur on vacant Port proper@es where the condi@ons of those proper@es have become dangerous, and the accidents result in injury, may be covered by Government Code, Sec@on 835.18 In such case, the injuries could result in a suit against the City, which could also be expensive. Within this context, and the mixed access and use of Port property, condi@ons such as the stairs leading down to Basin 1 may pose addi@onal risk to the City (see Figure 8.2 below). Figure 8.2: East Side of Basin 1, July 24, 2023 Source: Image taken by audit team. Previous Security Services Used The Port’s ﬁnancial records indicate that it contracted with a security provider between Fiscal Years 2016–17 and 2021–22 for security at the Port’s Terminal 1. Current staﬀ at the Port are not aware of the eﬀec@veness of the security services that were provided at that @me. 18 Gov Code Sec%on 835. hPps://leginfo.legislature.ca.gov/faces/codes_displaySec%on.xhtml?lawCode=GOV&sec%onNum=835. Accessed on January 16, 2024.

40 Procedure Needed to Address Security and Safety of Vacant Proper3es As noted in Finding 2 of this audit report, the Port lacks procedures for its cri@cal func@ons, and that includes property management and security of vacant proper@es. To address the risks related to vacant Port proper@es, such as liability to the City and damage to those proper@es, we recommend that the Port establish wriden procedures to consider security services, surveillance systems, alarm systems, and secure fencing when proper@es become vacant. This will help reduce the risk of damage to vacant proper@es that result in future repair costs and reduce the risk of injury that could result in lawsuits against the City and resul@ng future costs. Recommenda3ons We recommend that the Port of Richmond: 8.1 Priori@ze the process of solici@ng for, and veCng, poten@al tenants for vacant Port proper@es, in line with the Port’s strategic plan (see Finding 1). 8.2 Establish a wriden procedure to consider security services, surveillance systems, alarm systems, and secure fencing when proper@es become vacant. This is in line with the recommenda@ons made in Finding 2 of the audit report.

41 Finding 9: Debt to the General Fund The City Council passed Resolu@on No. 99-13 on October 15, 2013, which states that since 1977 the City has provided a loan and other services to the Port, which at that @me amounted to a total principal of $16,942,096 owed. While the resolu@on authorizes a promissory note facilita@ng par@al loan repayment through in-kind services—speciﬁcally, the berthing of the Red Oak Victory vessel—neither the Port nor Finance Department staﬀ archived the promissory note or associated documents, resul@ng in a lack of records substan@a@ng the purpose of the loans. This unresolved debt is referenced further by a 2011 Port audit, which men@ons a 2006 promissory note, with a reported agreement by the Port to repay the General Fund $17,139,188. As of FY 2023–24, ﬁnancial records show the Port s@ll owes the City General Fund $12,485,369.72. As was stated in the 2011 audit, “there is inadequate documenta@on of the underlying services provided by the City that led to the need for the Port’s repayment to the [City’s General Fund].” Documenta3on Deﬁciencies Our audit's inves@ga@on into this debt yielded no conclusive documenta@on from the Port or Finance Department related to the loan's origin or purpose. Some documenta@on presented to the City Council in recent decades state things like “the original loan dates back to the 1970s and was intended to ﬁnance container port infrastructure at Terminal 3.” However, no documents or calcula@ons could be found by City staﬀ or the audit team showing what was spent on behalf of the Port beyond these asser@ons. This absence of documenta@on is consistent with ﬁndings from the 2011 audit, which also failed to locate records clarifying the loans' original intents. Implica3on for Port Fees and Revenues Under California State code, the fees charged by the Port must reﬂect the reasonable cost of provided services. Without proof of the loans and promissory notes' legi@macy, the Port faces challenges in jus@fying the reasonableness of its fees, which are based upon its opera@ng costs, including the repayment of debt. The lack of documenta@on could poten@ally conﬂict with state law requirements. Lack of Documenta3on Could Suggest Other Problems Our audit, limited in scope to the Port, raises concerns that the problem of maintaining essen@al ﬁnancial documenta@on might extend beyond the Port to other City departments. The risk of such a systemic issue could be determined by broader review performed by the Finance Department to ensure that liabili@es across the City are substan@ated and compliant with legal standards.

42 Recommenda3ons Implemen@ng the following recommenda@ons would help ensure the Port remains in compliance with state laws and the fees it charges are based on the true cost of the Port’s opera@ons. We recommend that the City of Richmond Finance Department: 9.1 Provide documenta@on to the Port of Richmond and Richmond City Council related to the original loans to the Port and their purpose by June 30, 2024. 9.2 Review all loans between the General Fund and other City departments and ensure all suppor@ng documenta@on is maintained and suﬃcient to demonstrate that the liability is appropriate in compliance with state law. We recommend that the City Council: 9.3 If documenta@on of the original loans to the Port and their purpose have not been received by June 30, 2024, restate and eliminate the liability for these loans to help maintain compliance with state law.

43 Finding 10: Personal Emails Use of Personal Email Addresses The auditors have noted that Port and other City employees are periodically conduc@ng City business using their personal email accounts. This has been documented through samples of printed documents as well as emails received by the auditors from City employees. City staﬀ report that this problem may have worsened during the rapid transi@on to remote work in 2020. However, we found documenta@on showing that Port staﬀ had at least periodically used personal email addresses for City business during the prior decade as well. Contradic3ons in City's Administra3ve Manual The City of Richmond’s Administra@ve Manual is contradictory in its policy regarding personal internet and email usage. Its Use of Technology Policy AP 655, Sec@on B allows for minimal personal email and internet use in its Appropriate Use sec@on “to the extent that the use does not fall within one of the categories listed under prohibited uses and does not hinder a User’s ability to eﬀec@vely and eﬃciently accomplish his or her job func@ons”. However, the previous two sec@ons of the policy (the Email sec@on and the Web/Internet sec@on) both begin by sta@ng that these technologies are to be used for City related ac@vi@es only: Email: “City employees shall use the electronic mail system only for City related ac@vi@es”. Web/Internet: “The Internet shall be used for City-related business only”. The contradic@ons in these policies are counterproduc@ve. It appears that the City has not created a strict culture of separa@on between City and personal business on City-owned devices, and minimally should clarify its policies for employees and provide speciﬁc informa@on and guidance on how to comply with these policies. City employees may not even be aware that they are in the wrong account or logged into a browser through a personal address.

44 Risk of Viola3ng the California Public Records Act If City employees are, even uninten@onally, conduc@ng City business through their personal email accounts, or through browsers in which they are logged in via a personal account, the City may be unable to comply with public requests ﬁled under the California Public Records Act (CPRA).19 Under CPRA, any wri@ng rela@ng to the conduc@on of the public’s business which is prepared, owned, used, or retained by any state or local agency is considered a public record.20 As the City does not have access to current employees’ personal accounts, let alone past employees, they would not be able to provide these wriden documents produced by public employees. Recommenda3ons We recommend that the City Manager’s Oﬃce of Richmond: 10.1 Amend its Administra@ve Manual to clarify its policy regarding personal internet and email usage by City employees. 10.2 Disseminate the amended sec@ons of the Administra@ve Manual to all City employees and provide speciﬁc informa@on and technological guidance on how to comply with these policies and the California Public Records Act. 19 California Public Records Act, Government Code §7920.000. hPps://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?division=10.&chapter=2.&part=1.&lawCode=GOV&%tle=1. Accessed on January 18, 2024. 20 California Public Records Act, Government Code §7920.530: “‘public records’ includes any wri%ng containing informa%on rela%ng to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency regardless of physical form or characteris%cs”. hPps://leginfo.legislature.ca.gov/faces/codes_displaySec%on.xhtml?lawCode=GOV&sec%onNum=7920.530. Accessed on January 18, 2024.

45 Recommendations List Directed to the City Manager's Oﬃce of Richmond: Number Recommenda?on Con?ngencies 10.1 Amend its Administra@ve Manual to clarify its policy regarding personal internet and email usage by City employees.

10.2 Disseminate the amended sec@ons of the Administra@ve Manual to all City employees and provide speciﬁc informa@on and technological guidance on how to comply with these policies and the California Public Records Act.

Directed to the City of Richmond Finance Department: Number Recommenda?on Con?ngencies 4.3 Inves@gate and review the consistency of its document reten@on prac@ces for both onsite and oﬀsite storage.

4.4 Use the addi@onal staﬀ capacity gained by the Port adding a Finance Manager to perform comprehensive and rou@ne budget and ﬁnancial monitoring of the Port that is in line with the Government Finance Oﬃcer’s Associa@on’s best prac@ces. *con@ngent on recommenda@on 4.1 9.1 Provide documenta@on to the Port of Richmond and Richmond City Council related to the original loans to the Port and their purpose by June 30, 2024.

9.2 Review all loans between the General Fund and other City departments and ensure all suppor@ng documenta@on is maintained and suﬃcient to demonstrate that the liability is appropriate in compliance with state law.

Directed to the City of Richmond Public Works Department: Number Recommenda?on Con?ngencies

3.3 Develop an agreement with the Port, or an outside vendor managed by the Port, with a known billing rate and set service-level expecta@ons for work performed, to account for the remaining work, such as road repairs, that cannot be performed by the Port’s Maintenance Manager (see Recommenda@on 3.1).

3.4 Develop an interim tracking and billing method, such as tracking work performed using a spreadsheet, to recoup @me and materials spent on behalf of the Port.

46 Directed to the Port of Richmond: Number Recommenda?on Con?ngencies 1.3 Develop and present a proposed strategic plan to the City Council. This will provide the City Council with a proposed plan to review that is developed using the knowledge of its Port staﬀ.

1.4 Adopt a procedure to review the strategic plan with the City Council at least every ﬁve years. During the review staﬀ should include any proposed revisions to the strategic plan to be considered and possibly adopted by the City Council at that @me.

2.1 Develop and maintain wriden procedures for its cri@cal opera@ng func@ons. 2.2 Develop and document a backup plan, or succession strategy, for cri@cal roles and responsibili@es at the Port.

3.5 Perform a comprehensive facility condi@on assessment of all major Port assets arer a strategic plan has been adopted (see Finding 1).

5.1 Write and implement Port-speciﬁc procedures regarding how it solicits, selects, and vets tenants for Port proper@es. The procedures should include appropriate reten@on of suppor@ng documents such as all proposals received, the selec@on criteria and scoring, and all documents used to vet the accuracy of the tenant’s informa@on.

6.1 Write and implement a procedure to verify all reported cargo volume that aﬀects revenue from lease agreements, wharfage fees, tariﬀs, or other fees that may be calculated by the volume of cargo.

7.1 Include speciﬁc direc@on within their policies and procedures manual regarding inspec@ons/ monitoring of Port proper@es for tenant compliance with environmental clauses included in their leases as well as the San Francisco Bay Conserva@on and Development Commission policies (see Finding 2).

7.2 Document staﬀ inspec@ons/monitoring of Port proper@es for environmental compliance and other tenant ac@vi@es which may require a permit from the San Francisco Bay Conserva@on and Development Commission.

8.1 Priori@ze the process of solici@ng for, and veCng, poten@al tenants for vacant Port proper@es, in line with the Port’s strategic plan (see Finding 1).

8.2 Establish a wriden procedure to consider security services, surveillance systems, alarm systems, and secure fencing when proper@es become vacant. This is in line with the recommenda@ons made in Finding 2 of the audit report.

47 Directed to the Richmond City Council: Number Recommenda?on Con?ngencies 1.1 Provide direc@on to the Port on its long-term strategic goals for the Port. This will beder inform Port staﬀ as they develop a proposed strategic plan.

1.2 Formally adopt a proposed Port strategic plan developed by Port staﬀ. This will help give Port staﬀ clear direc@on. 3.1 Appropriate funds to hire a Maintenance Manager within the Port.

3.2 Direct the Port to consider all increased costs associated with the Maintenance Manager posi@on and incorporate them when seCng future fees, tariﬀs, and lease rates. *con@ngent on recommenda@on 3.1 4.1 Appropriate funds to hire a Finance Manager, a posi@on that was previously held at the Port un@l Fiscal Year 2014–15.

4.2 Direct the Port to consider all increased costs associated with the Finance Manager posi@on and incorporate them when seCng future fees, tariﬀs, and lease rates. *con@ngent on recommenda@on 4.1

5.2 Determine the nature of the Surplus Property Authority and, as recommended in the 2011 audit of the Port, either disclose more informa@on about it or dissolve it if no informa@on exists.

6.2 Appropriate funds and approve the posi@ons recommended in Finding 3 and Finding 4 to help ensure that Port staﬀ have the capacity to carry out veriﬁca@on ac@vi@es.

9.3 If they have not received documenta@on of the original loans to the Port and their purpose by June 30, 2024, restate and eliminate the liability for these loans to help maintain compliance with state law.

Page 1 of 3 ends

PORT OF RICHMOND

WRITTEN STATEMENT TO PORT AUDIT FINDINGS

PORT MANAGEMENT AND PERFORMANCE AUDIT FINDINGS
Finding Reference Number: 1 – Port Strategic Plan
Management response:

In addition to the Strategic Business Plan from 2007 mentioned within this audit, there was a 2011 Final Port Audit (similar to this current performance audit) that made recommendations regarding port operations and direction. See attached for reference on last performance audit.

This finding indicates that a strategic plan would result in longer-term leases with tenants and more direct investment in the port (see Staff Decision Making and Tenant Selection). However, there are costs and benefits related to shorter-term leases. Furthermore, the size of facility and type of operation to be supported are factors in determining lease duration. Most of the lease properties within PPMT (Finger piers and basins) are suited for and leased by small to mid-size marine operations (e.g. vessel lay berthing, tugboat operations, barge and dredging operations). These are not cargo handling import/export operations and consist of shore-side facilities of less than 1 to 3 acres. It is important at this time and going forward that we have flexibility in the lease and usage of these facilities as the development of a strategic plan may indicate alternative and/or other preferred maritime and port priority usage. We do agree the soliciting property improvement and investment in all leases is desirable and should be incorporated at appropriate levels for each site.

We agree a strategic plan is needed. The strategic planning project will start in 2024 and be completed in 1H 2025.

Finding Reference Number: 2 – Port Procedures
Management response:

As mentioned in the Audit, the Port is an Enterprise Fund operating under management of the General Fund. Several port procedures are based on and documented within City processes. The Port relies on City resources and departments for various and multiple support functions.

We do agree that a dedicated procedures manual is needed for the Port. Upon hiring additional headcount and as part of the strategic planning process, a port procedures manual will be developed.

Finding Reference Number: 3 – Maintenance Staff and Deferred Maintenance Management response:

We agree that the Port needs to be better resourced. Requests are being submitted to increase headcount.

A project management resource will be utilized to manage maintenance priorities.

Attachment A: Written Statement for Port Audit Findings 48

Page 2 of 3 ends

Finding Reference Number: 4 – Finance Staff and Financial Monitoring

Management response:

Regarding comments on flat revenue, note that in previous leases CPI increases did not become effective until after the initial lease term. This resulted in leases that did not increase on an annual basis. The current and revised lease template includes annual CPI increases.

Regarding comments on limited support for Grant Applications, a Grant and legislative resource is more important than an accounting resource. The Port’s preference is to use a commercial resource (sales, marketing) for financial reporting and closer engagement with the City accounting department.

Agree that the Port needs to be better resourced overall. Requests are being submitted to increase headcount. The port is working with Finance to establish a dedicated accounting resource so that the resource can be more familiar with operations across the Port and can assist with the development of port financial plans and reports.

Finding Reference Number: 5 – Lease Solicitation, Selection, and Vetting Process

Management response:

The Surplus Property Authority role has been discussed with City Council and is being addressed within CAO.

The lease solicitation, selection and vetting process follows City Richmond Real Estate processes and procedures. We agree a port specific process is preferred. The most recent lease of Basin 1 at Pt. Potrero Marine Terminal (2023) followed a standard process of lease solicitation and tracking through an RFP process. The port wants to make this process as robust as possible and will undertake efforts to improve interest in the Port properties and track all activity related to solicitation, selection, and vetting.

Given the unique nature of port properties and in particular the unique nature and status of the Port of Richmond properties, we anticipate there will be some degree of unsolicited request for leasing space.

Finding Reference Number: 6 – Lease Volume Guarantee Verification and Documentation

Management response:

The port and tenants operate under lease agreements with the standards of law facilitating compliance.

Within the port industry, landlord ports may undertake an audit of the cargo volumes on a one to two or three year basis. The Audit report is correct that at current resourcing levels, the Port could not do this on a regular basis at this time. A volume verification and audit process can be built into the port procedures manual as well as into cargo operations leasing documents going forward.

Finding Reference Number: 7 – Environmental Compliance and Lease Monitoring

Management response:

Similar to Finding 6 above, the port and tenants operate under lease agreements with the standards of law facilitating compliance. Within the port industry, landlord ports may undertake an audit of terminal operations and environmental compliance at some regular cadence. The Audit report is correct that at current resourcing levels, the Port could not do this on a regular basis. An operations and environmental Attachment A: Written Statement for Port Audit Findings 49

Page 3 of 3 ends

audit process can be built into the port procedures manual as well as into leasing documents going forward.

Our larger concern with regard to environmental condition is the unleased properties that are subject to vandalism, waste disposal and blight.

Finding Reference Number: 8 – Security at Port Facilities

Management response:

Agree with comments that leasing the properties is most effective at keeping them safe and secure. The port will be installing the Flock Camera system to improve security and safety.

Finding Reference Number: 9 – Debt to the General Fund

Management response:

Agree the debt to the General Fund needs to be validated as well as evaluated to ensure appropriate balance of payments. Some port properties at the time of the loan agreement and subsequent amendments, have changed or are no longer available within the port portfolio. Such changes need to be accounted for in the repayment terms.

None of the current Port staff were engaged or working with the Port at the time of the loan and subsequent resolutions. Ultimately the Port would like to get out from under this debt.

Finding Reference Number: 10 – Personal Emails

Management response:

Although this is not City practice, staff researched this item with the Information Technology Department and personal email was used by the prior Port Director. This is not City practice. Currently, personal email is only used in situations where a city email cannot be used such as Google docs. Staff will work with Information Technology to ensure adherence to City practice.

Attachment A: Written Statement for Port Audit Findings 50

Page 1 of 4 ends

PORT OF RICHMOND

RESPONSES TO GENERAL COMMENTS FROM ORIGINAL SCOPE

1. Is the Port making the best use of public funds?
Management response:

When addressing the Port’s funding and financials, it is important to highlight and reiterate that the Port is an Enterprise Fund, hence, the cost of providing goods and services is based on leases of port assets and user charges (i.e. tariffs). Although “best use” may evolve and refined through the pending strategic plan, the Port’s properties are nearly all leased and generating revenue except for facilities that are under activity with the City Attorney’s office. These include Terminal 1 and the General Warehouse. An RFP to lease the Cafeteria Building was unsuccessfully concluded. The lease for Basin 1, which transitioned due to moved tenant, is currently being finalized.

2. Is the Port utilizing efficient operating practices? Management response:

The Port utilizes resources and departments within City Management, including Finance, Human Resources, Purchasing, IT and Real Estate to name a few. City staff are generally utilizing the procedures for their respective departments when managing Port tasks. Having stated this, as the Port staff is reestablished, policies and procedures specific to Port activity will be consolidated and documented to ensure standard operating practices going forward.

3. Does the Port have an effective organization and/or management structure, including staffing and operations, when compared to other similar ports? Are there opportunities for improvement?
Management response:

The Port is highly focused on rebuilding staff and optimally utilizing contract staff, such as our Engineering Consultant Robert Stevens, as well as continuing to partner with City staff to establish dedicated attention where needed, such as Accounting.

The activity at the Port is growing with the addition of the Port Director, and the activity will increase with proper staffing levels. Ultimately, the Port’s activity and revenue will grow. The lack of a Port Board is not an immediate priority but should be reviewed at some point. The breadth of responsibilities and mandates for City Management and City Council are significant. Having a dedicated Port Board allows members of that Board to better understand the operations and economic benefits of the Port to provide direction and oversight to Port management. There are always opportunities for improvement.

4. Is the Port complying with internal controls, government rules and regulations? Management response:

The Port agrees that with continual development of lease terms and agreements, as well as the development of standard operating procedures, the process of auditing tenants will be incorporated into operations. To make best use of resources and funds, these will likely be annual or bi-annual activities.

Attachment B: Responses to General Comments from Original Scope 51

Page 2 of 4 ends

5. Does the Port’s current oversight structure guarantee transparency and public access to the information? If not, what are the recommendations?

Management response:

This topic is touched upon in Question Number 3 and 4 above.

6. Does the Port have an adequate management control system for accounting measuring, reporting, and monitoring its leases?

Management response:

Please see response to Question 4 above.

7. Are staffing levels appropriate for the size and complexity of the Port’s operations and business requirements?

Management response:

The Port is still currently staffed by one full-time employee, the Port Director. Other Economic Development staff support the Port on a part-time basis. The Port is seeking to incorporate the following staff/positions within the coming 12 to 15 months:
 Sr. Business Assistance Officer (Lizeht – convert to full-time Port)  Port Marketing/Operations Manager (position filled but not active employee)  Development Project Manager II (Port Projects and Maintenance Initiatives) - to be hired FY2024-2025.
 For future request: Grants and Legislative Affairs Officer – to be budgeted.

By comparison, the Port of Redwood City is of similar size and complexity to the Port of Richmond.

Redwood City is also very close on a financial basis operating a $12M dollar business. Port of Redwood City has a staff of 12 persons.

8. Are there opportunities for management/staff to carry out operations in a different way that might yield desired results more effectively or at a lower cost?

Management response:

Management recognizes the Port has not been properly resourced or managed over a several-year period.

The new and current Port Director is focused on improving revenue, operations, safety, facility utilization, and compliance across the port. This will come at a higher cost as more staff and investment are needed.

The Port team is focused on growing revenue and improving the Port’s balance sheet.

9. Is security at the Port effective? What are the recommendations for improvement?

Management response:

Security at the Port is improving with a renewed effort by Port staff to monitor properties and vacant areas around the Port. However, cable theft of AT&T copper wires has increased. The Port has met with RPD to discuss considerations and coverage around the Port area. This collaboration is just the first step.

The Port is also finalizing plans to install the Flock Camera system at locations around the port to improve drivers’ behavior as well as to provide further security in the port area. Further improvements being pursued include asphalt curbs and gates to limit access to unmonitored areas and to prevent sideshow activity.

Attachment B: Responses to General Comments from Original Scope 52

Page 3 of 4 ends

10. Are there specific physical changes to infrastructure that should be made to the Port properties that would improve the operation and maintenance of the facilities?

Management response:

The Port’s infrastructure is aging and in poor condition. The Port will be seeking vendors to complete a comprehensive Facilities Condition Assessment at the earliest opportunity. This is expected to take place simultaneously with the Strategic Planning exercise. The Port’s Wharfs, in particular, require significant investment to strengthen and refurbish these assets with a view towards using them productively for another 50 years.

11. Is technology adequate and utilized efficiently? Is the technology in alignment with business needs and relevant industry benchmarks?

Management response:

No further additions to GPP comments. The Port will review and consider IT improvements in the future.

12. Are leases or loan rates reasonable compared to industry standards and local market?

Management response:

The uniqueness of the facilities at the Port of Richmond makes an ‘apples to apples’ comparison of lease rates difficult. Based on informal discussion and review of other public port leasing data, the lease rates in Richmond are fair and competitive. Some existing leases are the result of opportunistic engagement, such as the lease for Terminal 4. If this space were not being utilized the Port would be left managing safety and security issues as well as the associated costs. Additionally, revenue for the cargo handling facilities at the Port (AWC and AKK) are based on Tariff rates that are controlled by the Federal Maritime Commission (FMC). Hence, we rely on the market rate setting capability by the FMC, although the Port does have some control in CPI increases to tariffs. Ultimately, increasing cargo throughput increases the Port’s revenue, hence, supporting our tenant’s growth is important.

Additionally, following a detailed review of the Auto Warehousing Company’s lease terms in recent months, the Port engaged the Land Econ Group to conduct an analysis of our Auto/RoRo business with other Ports handling Auto/RoRo operations. Please see the attached report Port of Richmond AWC Review which indicates that the Port of Richmond’s AWC business is healthy and positive. A constraint of our business is the weight bearing strength of Richmond’s wharfs. We are not able to handle heavy vehicles and equipment (RoRo cargo) that would generate higher tariffs. As indicated in the Port Audit, with the pending completion of bond payments, the Port’s liability for bond payments will be eliminated.

13. Is the Port responsive to the needs of customers, including tenants, city departments, council, members of the broader community, and regulatory agencies? Recommend how this could be more effective.

Management response:

The conclusions in this section reflect that the Port was understaffed and underfunded over a several year period. Operations will be more effective and efficient with increased staffing and investment.

14. Does the Port have an adequate management control system for measuring, reporting, and monitoring its leases?

Management response:

Audit comments have been addressed in 3, 4, 5 and 6 above.

Attachment B: Responses to General Comments from Original Scope 53

Page 4 of 4 ends

15. Review and make recommendations regarding policies and procedures relating to tenant services.

Management response:

No further comments.

16. Can the Port take any legal actions against the delinquent tenants to recover lost revenue?

Management review:

The Port is working with City Attorney’s Office regarding delinquencies and other tenant compliance considerations.

17. Are there any conflict-of-interest issues involving any current or former City Council members, Current or former City staff, Current or former Port’s tenants, Current and former Port’s contractors?

Management response:

The current Port management is unaware of any conflict-of-interest issues.

18. Is the Port adequately accounting for the prudent and effective management of the resources entrusted to them?

Management response:

No further comment to GPP’s report.

19. Is the Port following sound procurement practices, budgeting process, and accounting rules?

Management response:

No further comment to GPP’s report. A number of general management practices addressed through comments above and through response to Findings.

20. Review and make recommendations, as applicable, on the following:
a. Budgeting process and purchasing...
b. Accounting systems...
c. Adequacy of Port financial oversight...

Management response:

No further comment to GPP’s reporting.

21. Assess the adequacy of Port financial oversight from the Finance Department.

Management response:

No further comment. Please see GPP reporting Finding 4.

Attachment B: Responses to General Comments from Original Scope 54 MEMO II
To: Charl
es Gerard, Port of Richmond
From: Bill Lee, Land Econ Group
RE: Review of AWC Performance
Date: March 14, 2024

INTRODUCTION
The
Port of Richmond requested that Land Econ Group (LEG) review the performance of Auto Warehousing Corporation (AWC) in order to understand the market pricing for similar facilities for long-term planning. Our evaluation followed two tracks: 1) How AWC’s performance in at the Port of Richmond compares to other public California ports that import/export a substantial number of automobiles, and 2) How AWC processing of Subaru automobiles compares in numbers to total US Subaru sales.

COMPARISON TO OTHER CALIFORNIA PORTS
The key
public port competitors to the Port of Richmond for the import and export of automobiles are the Port of San Diego, Port Hueneme and the Port of San Francisco. The ports of San Diego and Hueneme are major players in the automobile import/export business, while the Port of San Francisco appears to face some challenges in this business.

Port of San Diego
The
San Diego Unified Port District has contracted with The Pasha Group to act as Terminal Operator of the National City Marine Terminal for the purpose of importing, exporting and short-term storage of automobiles. In terms of revenue generation, the Pasha Group has consistently been within the top five or six of this Port’s most productive tenants. The primary boundaries of this terminal cover 230 acres. However, the cargo handled at this terminal also includes coastwise lumber (Pacific Northwest), domestic coastwise cargo to and from Hawaii (Pasha Hawaii Transport Line), and international OEM (Original Equipment Manufacturer). There are multiple other tenants and customers at this terminal Attachment C: Memo II
55 2
with leases and temporary use occupancy permits; therefore, the entire 230-acre area is not exclusively dedicated to automobile processing.

Figure 1: National City Marine Terminal

During FY 2022/23 this terminal handled 290,539 automobile units and Pasha generated $12,022,000 in revenue for the Port (Table 1). The estimated per unit revenue amounted to $41. The per acre revenue for automobiles is not particularly meaningful because of the multiple overlapping uses for this acreage. A recently completed study, National City Marine Terminal (NCMT) Optimization Study completed in September of 2015, recommended that this terminal increase its automobile throughput target to 600,000 units per year in the medium term and 800,000 units per year long term.

If the Port of San Diego actually achieve success approaching this level, the Port of Richmond’s automobile import/export business will notice its competitive impact.

Attachment C: Memo II
56 3
Table 1: Comparison of Automobile Import/Export Metrics for Selected Ports

Port of San Francisco

In May of 2016, the San Francisco Port Commission approved a 15-year marine terminal management agreement with Pasha Automotive Service, a subsidiary of the Pasha Group for Pier 80. This pier is San Francisco’s primary general cargo terminal, consists of approximately 60 acres of cargo laydown space, two warehouses, and four deep water berths. While this agreement was signed with great fanfare with the promise of well-paid longshoreman jobs, the actual performance has been less than impressive. In FY2018/19 Pier 80 processed a high of 77,052 automobile units and generated $2,639,013 in revenue or $64 per unit. However, by FY2022/23 the unit count had dropped to 28,976 with revenue generation falling to $334,809 or only $12 per unit. Because of location and high cost, the Port of San Francisco has not competed effectively against ports like San Diego, Hueneme and Richmond.

AMG Reported Acreage Revenue
Port Lessee Year Units Units Total Per AMG Unit Per Process Unit Leased per Acre Richmond AWC FY 2022/23 145,000 91,252 $7,324,134 $51 $80 75 $97,655 Richmond AWC FY 2023/24 est 85,000 93,000* $3,419,550 $40 $37 75 $45,594 San Fracisco Pasha FY 2016/17 NA 15,093 $1,189,470 NA $79 60 $19,825 San Fracisco Pasha FY 2017/18 NA 34,039 $2,177,128 NA $64 60 $36,285 San Fracisco Pasha FY 2018/19 NA 77,052 $2,639,013 NA $34 60 $43,984 San Fracisco Pasha FY 2019/20 NA 52,714 $1,544,698 NA $29 60 $25,745 San Fracisco Pasha FY 2022/23 NA 28,976 $334,809 NA $12 60 $5,580 San Diego Pasha FY 2022/23 NA 290,539 $12,022,000 NA $41 230 $52,270 Hueneme WWS/BMW/
Glovis FY 2021/22 NA 148,183 $9,407,345 NA $63 NA NA
*Estimated by LEG
Source: Individual Port Fianancial Reports or Public Records Requests Amount Paid
Attachment C: Memo II
57 4
Figure 2: Port of San Francisco Pier 80

Port Hueneme

The Port of Hueneme ranks sixth in the nation in terms of automobile import/export volume.

This Port dedicates approximately 40 acres of terminal land for use by its Ro-Ro customers and stages automobiles in over 8,000 bays. In addition to the 13 western states served by the Port’s import of automobiles, auto exports are delivered to the Port from California, Ohio and Michigan. Approximately half of the Port’s revenue is generated from contracts with three vehicle distribution, manufacturing and handling companies. These companies and their partners process vehicles prior to delivery to dealerships as well as coordinate inland transportation. The two vehicle distributors include Wallenius- Wilhelmsen Services (WWS) and Glovis America, Inc. BMW North America processes its own vehicles through this port.

The Port’s financial analysis indicated that operating revenue for auto cargo totaled $9,407,345 for FY 2021/22 with the processing of 148,183 units. Revenue per auto units was $63, although it is possible this number includes the processing of heavy equipment. While Port Hueneme has 40 acres dedicated for Ro-Ro operations, WWS, Glovis and BMW have additional acreage available for automobile processing rendering the revenue per acre calculation meaningless. The major auto brands that are processed in Hueneme include BMW, Subaru, Kia, Hyundai, Volve, GM and Tesla.

Attachment C: Memo II
58 5

CONCLUSIONS FOR AWC OUTLOOK

The comparison analysis in Table 1 indicates that AWC/Port of Richmond’s financial performance is largely in line with its key public port competitors. For FY 2023/24 with the annual minimum guarantee (AMG) of 85,000, the City Finance Department has estimated total revenue from AWC of $3.4 million or $40 per unit and approximately $46,000 per acre. The Port of San Diego in FY 2022/23 achieved $41 per unit and $52,000 per acre with Pasha as the lessee. After opening Pier 80 for auto processing with considerable fanfare, performance at the Port of San Francisco’s Pier 80 has declined substantially.

During FY 2022/23, San Francisco processed only 29,000 units and earned only $12 per unit and $5,600 per acre.

A review of the units processed by auto brand (Table 2) indicates that Honda units dropped off sharply from FY 2018/19 to FY 2019/20 as Honda shifted production to the US, although a rebound was apparent in FY 2022/23 as Honda/Lexus imported some models not produced in the US. The overall number of units processed declined by nearly 15,000 units in FY 2020/21 likely due to the Covid pandemic. Led by Subaru and Honda, the number of units processed at Richmond climbed back to 72,100 in FY 2022/23 from a Covid low of 50,600 in FY 2020/21. Approximately one in ten Subarus sold in the US came through the Port of Richmond during the past two fiscal years. Given the US policy direction favoring domestic and North American manufacturing, it will be a challenge for the West Coast ports to substantially ramp up automobile import volume in the years ahead. The Port and AWC need to work cooperatively to develop a mutually supportive strategy going forward to greatly enhance the throughput of automobiles at the Port of Richmond. A key step would be to develop an in-depth understanding of the global auto market and to carefully track which brands are coming into Richmond and which brands represent new opportunities for the future of AWC and Richmond.

Table 2: Auto Units Processed at the Port of Richmond and Subaru Market Share

Calendar Total US AWC Richmond
Fiscal Year Honda Subaru Ford Total Year Subaru Sales Subaru Market 2018-19 45,196 NA NA NA 2019 700,117 NA
2019-20 6,260 53,999 4,946 65,205 2020 611,942 8.8% 2020-21 4,917 43,202 2,515 50,634 2021 583,810 7.4% 2021-22 3,188 54,722 1,023 58,933 2022 556,581 9.8% 2022-23 13,571 58,556 - - 72,127 2023 632,086 9.3% Source: Port of Richmond, GPP Analytics analysis of Port records and Good Car Bad Car Automotive Sales Data Units Processed
Attachment C: Memo II
59 Internal Audit of
Port of Richmond
llleluta ad
for
City of Richmond
June 28, 2011
Kevin W. Harper CPA & Associates
3002 Seriana Court
Union City, CA 94587
(510) 324-1022
[email protected]
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 60 Table of Contents
I. PURPOSE OF REVIEW
II. SCOPE AND APPROACH
III. OVERVIEW OF PORT OPERATIONS
• Mission
• Property Description
• Financial Summaries and Forecast
• Tariff and Fees
• Summary of Tenant Leases
• Summary of Internal Controls
• Staffing
• City Financing
• Capital Projects and Funding
IV. FINDINGS AND RECOMMENDATIONS
• Organization Structure
• Property Management
• Loans Payable to City
• Layberth Vessels
• Tenant Agreements
• Financial Reporting
• Security Deposits
• Certificates of Insurance
• Goals and Operating Statistics
• Financial Procedures
• Operating Procedures
• Marina Dredging Project
Page No.
1 1
2 13
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 61 City of Richmond
Internal Audit of the Port of Richmond
I. PURPOSE OF REVIEW
The Port of Richmond (the "Port") is a department of the City of Richmond (the "City"). This internal audit of Port activities was conducted to review the financial operations, efficiency, effectiveness and organizational structure of the Port and to provide City management with recommendations for improvement.

II. SCOPE AND APPROACH
The procedures that we performed during the internal audit were:
• Held discussions with City management to:
o Finalize scope of internal audit
o Obtain financial statements, budget and other relevant documents o Agree on timing and communication protocols
o Schedule interviews
• Gathered and read budget, policies and procedures, organization charts, financial statements, performance measures and other relevant documents • Prepared detailed work plan
• Interviewed employees and management of the Port of Richmond. Interviews focused on:
o Mission and goals
o Rate setting, billing and collecting procedures
o Current business process workflow, practices and procedures o Environmental and other risks
o Capital project plans and related funding
o Capabilities of financial software
o Historical problems and concerns
• Gathered "best practices" data and analyzed operations, work flow and record keeping and developed recommendations
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 62 • Prepared draft report containing a discussion of tariff fees, tenant leases and rental revenue, financial statements and forecasts, summary of internal controls, summary of city financing, capital projects and funding, work plan, findings, and recommendations for improvement
• Reviewed findings and recommendations with the Port Director to assure facts are correct, and that recommendations are understood and implementable • Revised report based on feedback and presented final report to City management III. OVERVIEW OF OPERATIONS
Mission
The Port is responsible for developing, marketing, leasing, operating and maintaining all City owned marine terminals to obtain the maximum financial benefit to the City. Port revenue is generated through the application of the Port Tariff and property lease agreements, which is used to fund operations, maintenance, capital improvements and debt service.

Property Description
Richmond has 32 miles of shoreline along the northern and eastern reaches of San Francisco Bay. There are five city-owned terminals. These tenant-operated terminals handle a variety of liquid and dry bulk commodities, automobiles and diversified cargo. There are ten privately owned terminals in the vicinity of the Port's operations that handle bulk liquid, dry bulk materials, metals, and bulk cargo; however the Port has no operational or oversight responsibilities for them. The Port has approximately 200 acres of land and 400,000 square feet of building space, of which approximately 40 acres and 180,000 square feet of building space is not currently rented. A brief description of each terminal and a map of the terminals follows:
• Terminal 1 - 14 acres of land and a warehouse in need of repair. Not currently rented.

The Redevelopment Agency is leading a request for proposal process to develop. • Terminal 2 - 8 acres of land and two warehouses totaling 140,000 square feet used for the storage and distribution of liquid bulk. The terminal is currently rented to a private business.
• Terminal 3 - 20 acres of land and a warehouse of 80,000 square feet used for the import, storage and distribution of bulk cargo and containers. The terminal is currently not rented but the second and third floors serves as the Port's Administrative Office. • Terminal 4 - 31 acres of land and a warehouse of 12,000 square feet used for trucking and storage.
• Point Potrero Marine Terminal-130 acres of land, four graving docks, two finger piers and two warehouses totaling 170,000 square feet used for import, storage and distribution of autos, dry and liquid bulk, The terminal is currently rented to seven private businesses, two nonprofit organizations and one federal agency.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 63 Financial Summaries and Forecast
Following are Port operating results from the City's audited annual financial report for each of the previous four years ( on the accrual basis of accounting):

OPERATING REVENUES
Leases
Layberth
Other
Total Operating Revenues (Note 1)

OPERATING EXPENSES
Salaries and wages
General and administration
3 I
2006-07
$5,206,410
186,216
5,392,626
735,394
1,345,398
2007-08
$5,765,173
170,331
(35,378)
5,900,126
837,443
2,129,592
2008-09
$4,893,730
202,110
5,095,840
1,008,522
2,284,256
2009-10
$3,867,981
14,172
3,882,153
1,076,538
1,483,175
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 64 Maintenance
Depreciation
Other
Total Operating Expenses (Note 2)
Operating Income (Loss)

NONOPERATING REVENUES (EXPENSES)
Gain (loss) on retirement of capital assets
Interest income
Grants
Interest expense
Total Nonoperating Revenues (Expenses) (Note 3)
Income (Loss) Before Transfers
Transfers In (Note 4)
Transfers Out
Changes in Net Assets
Beginning Net Assets
Ending Net Assets (Note 5)
Notes:
22,075
908,726
3,440
3,015.033
2,377.593
41,000
187,774
(675,700)
(446,926)

1.930.667
1,047,225

2.977.892
(5,632,589)
$(2,654.697)
50,661
919,326
7,037
3,944.059

1.956.067
(60,272)
161,534
2,782,673
(585,458)
2298.477

4.254.544
1,863,750
(156,870)
187,023
886,392
11,312

4.377.505
718.335
146,422
50,027
(361,764)
065.315)
553,020
(7,608)
368,404
1,393,558
79,338

4.401,013
(518.860)
(452,495)
(17,096)
25,000
(3,757,708)
(4,202,299)
(4.721.159)

5.961.424 545,412 (4.721.159)
(2,654,697) 3,306,727 3,489,1 11
SJ.306,727 $ 3•852•139 $(1.232.048)
(1) Operating revenues in fiscal year 2009-10 declined primarily from Auto Warehousing due to construction of Honda improvements.
(2) Operating expenses increased from fiscal year 2006-07 primarily as a result of two additional Port employees and additional depreciation and maintenance related to the new Honda facilities. (3) Non-operating revenues (expenses)-The large grant revenue in fiscal year 2007-08 was for security cameras and the large interest expense in fiscal year 2009-10 was debt service on the Honda debt. (4) Transfers in-Fiscal year 2006-07 represents transfer in of proceeds from Port Terminal Lease Revenue Bond Fund to pay for capital improvements. Fiscal year 2007-08 represents transfer in for closure of certain Port funds and consolidation into a single fund. (5) Ending net assets for fiscal year 2008-09 not equal beginning net assets for fiscal year 2009-10 because of the City's implementation of a new accounting standard regarding derivative investments.

Below is the Port's financial forecast for the current and four subsequent years. Since the forecast is shown on a cash basis of accounting, it is not consistent with the historical results shown in the table above ( e.g., it includes capital outlay expenditures instead of depreciation expense and includes contribution from bond proceeds as a transfer in).

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 65 Projected
Actual Budget Forecast Forecast Forecast
2010-11 2011-12 2012-13 2013-14 2014-15

REVENUES
Leases $ 6,567,997 $8 ,176,447 $8,335,753 $8,493,725 $8,814,663 Grants (Note 1) 400,000 11,600,000
Other Revenues 28,446 50!000 50,000 50,000 50,000
Total Revenues 6,996,443 19,826,447 8,385,753 8,543,725 8,864,663

EXPENDITURES
Salaries & Benefits 918,137 965,375 997,806 1,041,700 1,087,592 Professional & Admin 150,000 1,188,475 1,247,899 1,310,294 1,403,539 Other Operating 54,200 49,300 51,765 54,353 57,071
Equipment & Contract Services 45,000 38,500 40,425 42,446 44,569 Utilities 201,700 237,100 248,955 261,403 274,473
Provision for Insurance 24,000 30,000 31,500 33,075 34,729 Cost Pool 942,802 883,269 942,802 942,802 942,802
Capital Outlay (Note 1) 8,758,035 13,480,000 1,000,000
Debt Service 3,855,443 3,868,055 3,868,055 6,203,862 6,092,854 Total Expenditures 14,949,317 20,740,074 8,429,207 9,889,935 9,937,629

OTHER FINANCING SOURCES
{USES)
Contribs from Bond Proceeds (Note 2) 9,405,465 1,108,053 Operating Transfer In (Note 3) 750,000
Operating Transfers Out (Note 3) {250,000} {150,000} {150,000} {150,000} Total Other Financing Sources
(Uses) 9,4051465 1,608,053 {150,000) {150,000} {150,000) Operating Surplus (Deficit) 1,452,591 694,426 (193,454) (1,496,210) (1,222,%6) Beginning Balance 457,607 1,910,198 2,604,624 2,411,170 914,960 Ending Balance $1,910,198 $2,604,624 $2,411,170 $914,960 $(308,006) Notes:
(1) Grants revenue and capital outlay expenditures for fiscal year 2011-12 are both large as a result of grant funding received to construct facility improvements as discussed on page 11. (2) Represents use of 2009 lease revenue bond proceeds for Honda improvements. (3) Represents $750,000 operating transfer from City General Fund to finance Subaru improvements, and related repayments to the General Fund of$150,000 per year. $100,000 transfer out in fiscal year 2011-12 is for Riggers Loft project
Fiscal years 20123-13 through 2014-15 forecast an aggregate operating deficit of nearly $3 million. Port management believes this forecast is conservative because it (i) assumes no new s I
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 66 tenants even though the Port is actively pursuing new business from China and (ii) excludes significant expenditure on capital projects and potential grant funding.

Tariff and Fees
Amounts charged to tenants for dockage, wharfage and service charges are recommended by the Port Director and approved by both the City Council and the California Association of Port Authorities. The rates are based on the type of commodity being shipped. The tariff for the Port of Richmond has not been revised since April 2007 and prior to that had not changed since December 1999. Following are the most used rates from the Port's tariff:
• Dockage - based on the length of the ship
times tariff rate times the number of days
docked. Example rates are:
30 meters
390 meters
• Wharfage:
o Non-containerized cargo vessel
through pipeline
o Automobiles, pleasure or passenger,
including pick-up trucks or chassis,
not exceeding 10 passengers per vehicle
• Service and Facility Charges - Liquids in bulk
from/to vessel or barge
$84 for 1st 24-hour period
$11,950 for 1st 24-hour period
$1.50 per metric ton
$23.10 each
$ 1.50 per metric ton
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 67 Summary of Tenant Leases
Following is a summary ofleases for fiscal year 2009-10:

Security
Revenue Annual Rent Deposit per
Tenant Location Lease Term FY2009-10 Increase Lease
Space Re""11 Begin End
Aloha Moving PPMT 6/4/2003 na $ 20,408 none $1,800
Foss Maritime PPMT 1/112007 1/1/2012 284,940 4% 9,000
General Services Admin PPMT 3/1/2006 212812011 65,000 none none Honda of El Cerrito PPMT 12/1/2007 11/30/2009 78,000 5% 6,500 Crowley Maritime PPMT 10/2412002 na 17,724 none 1,000
California Oils Terminal2 1/1/1991 6130/2016 232,631 4% none Auto Warehousing PPMT 5/112004 5/1/2014 1,082,163 none none Marine Spill Response PPMT 6130/2003 6/13/2013 270,265 3% none Nextel TerminalJ 12/31/1998 12/31/2013 24,542 5% none
Oscar Niemeth PPMT 3/612006 na 43,549 none none
Maas Boat Co. PPMT 1/1/1995 na 23,063 5% 1,636
Pio Trucking Terminal4 6/1/2010 5/31/2011 20,250 none 4,500 Richmond Museum PPMT 9/20/1998 6/20/1999 na none
DockqgeFeq
ISS Marine Srvc Inchcape Vessel 430,981
K-Sea transportation LLC Vessel 16,288
Matson Navigation Vessel 194,521
Northland Nautical Vessel 819
Olympic Tug and Barge Vessel 7,454
Red Oak Victory Vessel 7,885
Sause Bros Vessel 93,224
Starlight Maria Vessel 195
Stcvedoria Services Vessel 469,200
Translogix (AWC storage) Vessel 16,276
Wilhelmser Ship Service Vessel 33,605
Patriot Environmental Svces Vessel 10,000
Norton Lilly Vessel 26,451
K line America Inc. Vessel 2,585
$3 472619
7 I
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 68 Summary of Internal Controls
Billing Procedures
The Port bills and collects three types of revenue: 1) monthly rent; 2) layberth or docking fees; and 3) the Auto Warehousing contract.
• Monthly Rent- Bills are prepared by the Financial Manager. The monthly rent is for the rental of the actual space a tenant uses. There are currently eleven tenants that pay monthly rentals. The Financial Manager prepares the invoices for the monthly rentals.

The following procedures are followed:
o Monthly invoices are entered into MUNIS
o Invoice batches are printed, checked for accuracy and emailed to the City's Finance Department (Finance)
o All backup is scanned and sent to Finance
o Finance approves and posts the batch in MUNIS
o Finance mails the invoices to the tenants and also sends the Financial Manager a copy
o All payments are mailed directly to finance. Finance does not notify the Port when the cash is actually received but sends a monthly statement to the Financial Manager who mails to the tenants
o The Financial Manager prepares a receivables aging report which is downloaded from MUNIS
• Layberth or Docking Fees - Currently the Port has two major tenants that pay for docking and wharfage: California Oils and Honda. Each one uses a vessel agent that submits a Vessel Activity Report, which lists the ship name, arrival dates, number of units and total wharfage, to the Port's Financial Manager. The information is verified by the Financial Manager by comparing to the Port's Vessel Schedule Report. The vessel agent is billed for wharf age and dockage based on the tariff rates and are entered in MUNIS as described above.
• Auto Warehousing Contract - The agreement with Auto Warehousing Company (A WC) requires the Port to refund to A WC 25% of the total wharfage earned for the month. Each month a Vessel Schedule Report and a Honda Revenue Earned Report are submitted by AWC to the Port's Financial Manager. The Honda Revenue Earned Report contains the revenue earned by each vessel that arrived at the Port, and the wharfage, surcharge, services, storage and facility charges per unit. The Financial Manager compares the volume information on the Vessel Schedule Report to the amounts billed on the Honda Earned Revenue Report. A WC is billed based on the tariff rates and are entered in MUNIS as described above.

Purchasing and Cash Disbursement Procedures
The Port uses a purchasing checklist (P3 form) that is required for all purchases of goods and services. The P3 form is completed by the person initiating the transaction. The P3 form is entered in MUNIS by the Financial Manager and is approved by the Port Director. Once the P3 Attachment D: Internal Audit of Port of Richmond, June 28, 2011 69 form is approved in MUNIS, a pmchase requisition is entered, approved and a purchase order is created for all contracts exceeding $10,000. The person who initiated the transaction mails the purchase order to the vendor.

Invoices are submitted by vendors directly to Finance. Finance emails the Port the invoices to approve for payment. The Financial Manager prints the invoices and obtains the signature of either the Port Director or the Development Project Manager for approval. The approved invoice is scanned as a "goods received" document and is entered into MUNIS. The Financial Manager emails Finance to notify them to pay the invoice.

Three Port employees have Calcards for purchases with up to a maximum of $3,000 per day.

The Port $500 petty cash fund for small pmchases.

Payroll Procedures
The Port's payroll is processed by the Operations Administrator. The Port is included in the City's payroll process which is on a semi-monthly basis. The Port has five employees.

On an annual basis, Finance sends the Port a schedule of timesheet due dates. A blank timesheet is also sent and copies are made for each employee for each pay period. Staff signs their timesheets and are approved by the Port Director. The Port Director's timesheet is approved by the City Manager.

Staff requests for time off are handled via the intranet by using an Employee Self Service Request Form (ESS). The ESS form goes to the Port Director for approval and the request is sent back to the employee. On the timesheet due date, the ESS form is printed and attached to the timesheet. All timesheets and ESS forms are then forwarded to City Payroll for processing.

Accounting and Reporting Procedures
Journal entries are processed using the City's standard journal entry procedures. The Financial Manager prepares all journal entries using the journal entry form and enters into MUNIS.

MUNIS automatically assigns a journal entry number. All backup for the entry is scanned and sent to Finance for review, approval and posting. Finance sends the journal back to the Financial Manager after it has been posted in MUNIS.

Each month a budget vs. actual variance report is prepared by the Port and is due to Finance by the 10th of the following month. The variance report is prepared by the Financial Manager with information downloaded from MUNIS. The reports are reviewed and discussed in staff meetings at the Port. Each quarter the Port prepares a performance measures report which analyzes the activities of the Administration and Capital Improvement Projects divisions. The Port also prepares a midyear review report and a five-year projection report.

Budgeting Procedures
The Financial Manager coordinates the budget preparation process and all staff are involved in providing information. A budget narrative is prepared to accompany the budget amounts. The budget is reviewed by the Executive Director and then uploaded to MUNIS for review by Attachment D: Internal Audit of Port of Richmond, June 28, 2011 70 Finance. At the end of each month, the Financial Manager prepares a budget vs. actual variance report that is reviewed by Port management
Staffing
The Port has the following staffing as of March 31, 2011:
• Port Director -Jim Matzorkis
• Port Administrator - Open
• Development Project Manager II - Michael Williams
• Operations Administrator - Janie Singleton
• Financial Manager - Delmy Cuellar
• Maintenance Lead Worker - Tim Goins
City Financing
Loan from City
On May 17, 2006, the City and Port entered into a promissory note effective June 30, 2005 in the amount of$17,139,855. The note bore no interest and required repayments of$6.3 million on or about July 1, 2006, $700,000 for 2008-09 and $2,027,971 for each fiscal year thereafter until the note was fully repaid during fiscal year 2013-14. The note states that the amount owed by the Port is for "Port terminal leases and other Port projects financed by the General Fund".

On May 24, 2007, the City and Port entered into a promissory note in the same amount of $17,139,855. The note requires principal repayments of$50,000 for fiscal year 2006-07 and fiscal year 2007-08, $6,350,000 for fiscal year 2008-09, $2,000,000 for each of the fiscal years 2009-10 through 2013-14, and $689,855 for fiscal year 2014-15. The repayment schedule attached to the note begins charging interest for fiscal year 2009-10 at the interest rate equivalent to the three year LAIF of the outstanding principal amount. The repayment schedule assumed that the $6,350,000 principal payment scheduled for fiscal year 2008-09 would be made, however terminal I was not sold as expected so this payment was not made.

Following is actual activity related to the City loan per the Port's accounting records since its inception:
$17,139,855 Owed to City at June 30, 2006 per promissory note (50,000) Repayment May 2007
(50,000) Repayment June 2008
397,525 Interest accrued at June 30, 2010
$17,437.380 Owed to City at June 30, 2010
Indirect Cost Allocations
The Port pays the City's General Fund $942,802 per year for its share of the City's indirect costs.

We understand that the City has conducted a new cost allocation study during fiscal year 2010- 11 and the Port's share of allocated costs will decline to $836,017 per year. Specifically, the allocated costs for fiscal year 2010-11 are:
10 I
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 71 Maintenance
Information technology
General liability insurance
Communications
PC support
Financial software
Geographic information system
Administration
Total
$ 37,450
27,385
25,527
16,388
5,265
42,453
1,144
787,190
$942,802
Administration charges are allocations of costs related to building usage, City Council and Mayor, City Manager, Finance, Human Resources, City Clerk and City Attorney.

Capital Projects and Funding
Following is a schedule showing the Port's approved capital projects, and the related financing:

Project Description Expenditures
3/31/11 LTD Budget
Bay Trail Shipyard No. 3 $ 692,000
Berth Dredging 1,058,844
Fiber Optic Network 4,310,504
Honda Port of Entry at PPMT $3,220,162 5,771,329
Integrated Video Surveillance System 3,018,027
Lighting Improvements at PPMT 2,650,000
Marina Dredging 2,100,000
Port Rail Corridor Facilities 1,904,917 2,295,211
Railroad Improvements Quiet Zones 190,088 1,000,000
Subaru Building 4 Rehab 750,000
Terminal 2 Timber Wharf Replacement 1,000,000
Terminal 3 Office Building Upgrade 154,561 3,787,889
Total $S.462,Z�8 $28-�33,B04
The financing sources listed above are:
• Grant -represents grants awarded to Port as discussed on page 12.

Financing Sources
Grant
Unfunded
Grant
Debt Proceeds
Grant
Grant
City
Debt Proceeds
Port Cash
City
Unfunded
Grant
• Debt Proceeds-represents $47,110,000 of2009 lease revenue bonds issued to finance Honda improvements. This debt is secured by minimum annual guarantee in Honda lease agreement
• City-the City's Marina Enterprise Fund is paying for the marina dredging project and the City is loaning $750,000 to the Port for Subaru improvements • Port Cash -represents amounts funded by Port operating surplus • Unfunded -represents project whose revenue source has not yet been identified 111
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 72 Following is a schedule showing the Port's grants as of March 31, 2011:

Granting Agency
Ass'n of Bay Area Governments
U.S. Dept of Homeland Security
Calif Emergency Mgmt Agency
Calif Emergency Mgmt Agency
Calif State Coastal Conservancy
CalTrans
U.S. Dept of Homeland Security
Calif Emergency Mgmt Agency
Project
Bay Trail Project
Video Surveillance
Video Surveillance
PPMT Lighting
Bay Trail Project
Bay Trail Project
Fiber Optic Network
Security Center
Award
Amount
$ 289,000
2,311,138
754,507
2,650,000
97,000
350,000
4,310,504
3,787,889
$14,550,038
Life-to-Date
Expenditures
$154,561
$154,561
Attachment D: Internal Audit of Port of Richmond, June 28, 2011 73 IV. FINDINGS AND RECOMMENDATIONS

1. ORGANIZATION STRUCTURE
The Port's strategic plan states that "The valuable real estate and coastal waters belonging to the community should be cared for in a manner that protects the interests of that community through, environmental stewardship, economic development and job creation." The Port's mission is " ... to obtain the maximum financial benefit to the City." Infrastructure investment needs will continue to be a major burden for the smaller ports, including the Port. When a port is governed by a city council, its infrastructure needs frequently are delayed as more pressing social issues are addressed. As a result, more ports are moving toward the privatization of managerial and financial responsibilities. Privatization allows some ports to stay competitive with the upgraded facilities needed to meet the needs of shipping lines.

In one privatization model, a port authority is established to own the land, berths and other infrastructure. The port authority would take direction from the City Council as it relates to broad public interests. Otherwise it would be autonomous, own its own assets, set its own budget, manage investments, establish staffing levels and pay, and have its own governing body.

A private company or another port would be hired to manage the commercial side of the transactions. The port authority would spell out service quality, goals and social obligations that port management must meet. It would retain the right to set overall policies for the port but would forego making operating decisions. This, in effect, would give the professional port managers the same authority and responsibility as if they were functioning in the private sector.

There are other privatization models that would require the City to sell the Port's assets. Those models are not described here and are not being recommended.

Recommendation
The City should consider establishing an autonomous port authority to manage the port in a manner to make it more competitive with other ports. Alternatively, the City should consider the benefits of outsourcing operational management another port or to a professional port management firm.

2. PROPERTY MANAGEMENT
The Port has significant land and building assets that were acquired at various times over the past several decades. The City has not conducted appraisals of its land and buildings and therefore does not know their market value. In the last 15 years, Port management estimates that the City has invested over $40 million in capital improvements for projects such as rail line extension, environmental cleanup and dock/pier improvement. The Port currently has capital projects underway totaling over $28 million as described on page 11. There are numerous other capital projects that need to be undertaken for the Port to continue to draw tenants, including electrical system upgrade, timber wharf replacement, Riggers Loft building renovation, Point Potrero general warehouse renovation, terminal 2 berth upgrade, terminal 4 docks/piers replacement, and cafeteria building renovation.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 74 Several large governments, including seaports, have started using public-private partnerships to finance their large capital projects. These partnerships are frequently structured so that the private partner pays a large upfront cash payment and agrees to make certain capital improvements. In return the private partner gets a long term lease at a reduced rental fee. The government retains ownership of the land and improvements and the end of the lease term.

The Port has no property manager. A property manager would focus on maximizing revenue for each parcel of land by understanding each parcel's highest and best use, understanding the needs of potential tenants and buyers, developing plans to make needed improvements and obtain related funding. These duties were partially handled by the former Port Administrator, a position vacant since October 2010.

Recommendations
The City should hire or engage a property manager to develop detailed plans to maximize return on investment to the City for each parcel by studying the competitive needs of its current and potential tenants; renew current leases having lower than market value rents as described in Finding 5; develop and prioritize a list of needed facilities improvements; secure financing to improve the facilities; and lead the global Environmental Impact Report the Port has initiated.

The Port's master list of needed capital projects should be formalized and prioritized.

The criteria used to determine when a desired project is placed on the master list and the criteria used to prioritize those projects should be defined.

3. LOANS PAY ABLE TO CITY
The Port and City entered into a promissory note dated May 2006 and amended May 2007 whereby the Port agreed to repay the City $17,139,188 plus interest for "Port terminal leases and other Port projects financed by the General Fund." The only documentation that City and Port personnel could locate indicates that original loans were made between 1985 and 1995 in annual amounts ranging from approximately $387,000 to $2.0 million, and that the note amount is composed of $8,872,397 of principal and $8,075,597 of accrued interest. This documentation did not specify the purpose of the loans.

There are several problems with the calculations of interest on these loans:
• Prior to execution of the first promissory note in May 2006, there is no evidence of intent or agreement that the loans would carry interest nor what interest rate would be used • The period for which interest was charged is not consistent. It appears interest was charged each year through June 30, 2004, not charged from then until June 30, 2009 and again charged starting July 1, 2009
• The interest rate used may not be consistent. The only calculations the City could provide of interest indicates that 5.5% was used for fiscal years 2002-03 and 2003-04.

There is no documentation of how this 5.5% rate was determined.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 75 • The promissory note indicates that the interest rate starting in fiscal year 2006-07 will be the three-year average of the State of California Local Agency Investment Fund's rate, however the promissory note also refers to a rate of 4.000%. • The balance on which interest is calculated is not clear. It is normal for interest to be determined based on the outstanding balance (principal and interest totaling $17,139,188). Up to fiscal year 2003-04, interest was calculated based only on the outstanding principal balance ($8,872,397).
• The interest accrued for fiscal year 2009-10 incorrectly excluded interest on the 1995 principal amount of $334,647. Beginning with the promissory note in fiscal year 2006- 07, interest is calculated on the entire outstanding balance.

There is inadequate documentation of the underlying services provided by the City that lead to the need for Port's repayment to the City. As mentioned above, the only documentation provided by Port and City staff shows the year of each loan amount but no details of what the funds were advanced for. The first paragraph of the promissory note dated May 27, 2007 identifies the reason for the loan as follows: "Since on or about December 2004, the City of Richmond (City) has provided the following services to the Port of Richmond (Port): Port Tenninal Leases and other Port projects :financed by the General Fund." However, the loans originated in the period 1985 through 1995. In addition, the description of the specific services provided by the City is not clear (i.e., it is not clear how "Port Tenninal Leases" would lead to required repayments to the City).

The Port is not in compliance with and the repayment schedule included in the promissory note.

The note calls for annual repayments to the City each fiscal year as follows:

Fiscal year 2006-07 $ 50,000
Fiscal year 2007-08 50,000
Fiscal year 2008-09 6,350,000
Fiscal year 2009-10 2,000,000
Fiscal year 2010-11 2,000,000
Fiscal year 2011-12 2,000,000
Fiscal year 2012-13 2,000,000
Fiscal year 2013-14 2,000,000
Fiscal year 2014-15 689,855
The two $50,000 repayments were made as scheduled. However, no payments have been made since then.

State law requires a reasonable relationship between the payment of a fee and the purpose for which it is charged. Therefore it is important that the City have adequate documentation of all charges paid by the Port to the General Fund and be able to demonstrate the value provided to Port tenants.

Generally accepted accounting principles require that the Port have both the intent and ability to repay a liability for it to be appropriately reported in its :financial statements. The Port's intent to repay is documented in the promissory note. However, its ability to repay is in substantial doubt.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 76 It has repaid only approximately $285,000 in the last 25 years including none in the last four years. The Port's five-year financial forecast shows an aggregate operating deficit of over $2 million during fiscal years 2011-12 through 2014-15.

Recommendations
The City should locate and document the specific services provided to the Port that led to the $8,762,397 of loans. For any portion of the loans for which documentation is not available, the City and Port should remove the related loan amount from their accounting records. Note that removing the loan from the accounting records does not necessarily remove the legal liability to repay the loan should the Port later gain the ability to repay.

The City and Port should determine the Port's ability to repay the loans. Ifit is not clear that the Port has such ability within a reasonable time, the amount exceeding the Port's ability to repay should be removed from the accounting records.

The City should recalculate the amount of interest due on the outstanding balance since its inception based on a consistent and defensible methodology. The method described in the promissory note (three year rolling average ofLAIF applied to the average outstanding balance each year) is an example of a reasonable method.

The City and Port should update the promissory note to better define the services for which the Port is repaying, update the repayment schedule and clarify how the interest rate is determined.

4. LA YBERTH VESSELS
The Port is missing out on significant revenue per year from layberth vessels. Layberth means temporary docking of vessels between assignments. In approximately December 2009, the Port stopped accepting layberth vessels. In order to accept layberth vessels, Federal law requires the Port to have a security officer and to have a security plan approved by the Coast Guard. The Port was previously allowed to accept layberth vessels using the security officer and security plan of a former tenant. Layberth revenue averaged approximately $175,000 per year for fiscal years 2007-08 and 2008-09.

In Resolution 18-98, the City Council authorized the Port Director to enter into Temporary Berthing Assignment Agreements and provided the format of such agreement. However, the Port has not used this agreement nor any other written agreement for layberth vessels using Port facilities. The Port requires only a reservation request form to be completed; this form does not have any clauses to protect the Port against risks of damage to facilities or other losses.

Recommendations
The Port should appoint a security officer, develop and security plan, and submit it to the Coast Guard for review. If the workload of current Port managers is deemed more mission-critical, then a consultant should be hired to complete this task. As soon as the security plan is approved, the Port should advertise its reopening as a layberth location.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 77 The Port should follow Resolution 18-98 by executing the Temporary Berthing Assignment Agreement for every vessel docking at the Port.

5. TENANTAGREEMENTS
The Port enters into lease agreements with each tenant. Of the Port's thirteen fiscal year 2009-10 tenants, there was no lease agreement in the Port's files for two tenants and for two others the lease agreements were not signed. The Port's leases were entered into at various dates since 1998. Six of the thirteen leases do not have a provision for rent increases. If these six agreements had automatic rent increases of 3% per year, the Port would have earned approximately $20,000 more during fiscal year 2009-10.

Of the Port's thirteen fiscal year 2009-10 tenants, four lease agreements are with the Surplus Property Authority of the City of Richmond (the "Authority"). Per discussions with management of the Port, Finance, City Attorney and City Clerk departments, none knew of the origin nor purpose of the Authority. The City's annual financial report states that the Authority was "fonned to become the owner of certain property declared surplus by the U.S.

Government" and that ''the Authority is inactive".

The Port's lease agreements with Auto Warehousing Company (AWC) and Honda of California are large (several million dollars of Port revenue each year) and complex (minimum annual guarantee, volume rebate, significant capital improvements, different requirements during the construction period). Much of the information needed to determine the correct billing to tenants is received from the tenants. The only verification of such tenant-provided information is comparison of quantities to Port records. An example of a complex issue needing interpretation is that AWC sent its calculation of the minimum annual guarantee deficiency that used the tariff rate per vehicle of $23 .10 instead of the wharfage rate per the Honda agreement of $25.50.

Recommendations
The Port should obtain signed copies of each active tenant agreement. It should negotiate lease amendments to include an escalation clause as each agreement expires. In the future, all lease agreements should include a provision for automatic rent increases.

The City should verify the status and purpose of the Surplus Property Authority. If it is determined to be beneficial to maintain, the City's annual report disclosure about the Authority should be updated. If it is not deemed beneficial to maintain, it should be dissolved.

Port operating personnel should study the Auto Warehousing and Honda leases to assure thorough understanding of their complexities and gain both City management and City attorney interpretations as necessary. Information received from the tenants that affect the Port's revenue should be closely scrutinized with knowledge of the agreements, historical trends and tenant operations.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 78 6. FINANCIAL REPORTING
The Port's primary financial reports (budget, monthly financial statements, annual financial statements and five-year projection) are inconsistent in format. For example, the CAFR and the five-year projection use different expense categories:
• CAFR - salaries & wages, general & administration, maintenance, depreciation, and other.
• Budget, five-year projection, monthly financial statements - professional & administration, other operating, equipment & contract services, utilities, insurance, cost pool, capital outlay and debt service.

Another example is that the bases of accounting used for each of these reports differs: the annual financial statements use the full accrual basis, the budget and monthly financial statements use the cash basis, and the five-year projection uses a working capital basis.

There were several errors noted in the Port's primary financial reports, including:
• In the annual financial statements (CAFR):
o Revenue from layberth vessels was incorrectly reported as "marina berth rentals" in fiscal years 2006-07 and 2007-08.
o Lease revenue from Auto Warehousing Company was reported as "lease income" while all other lease revenue was reported as "service charges". o Port staff was unable to fully reconcile fiscal year 2009-10 revenue per the CAFR to the general ledger and the revenue report.
• In the five-year projection:
o The Port's repayment to the City of$750,000 for an advance to fund Subaru improvements scheduled for fiscal years 2011-12 through 2015-16 were inadvertently added rather than deducted from operating surplus/deficit. o Rental income for fiscal year 2010-11 of$6,504,113 was input in error and should have been $7,054,113.
o Although the projection purportedly uses the working capital basis, unused debt proceeds was not included. This leads to the need to add an arbitrary revenue line item in the five-year projection for the estimated amount of debt proceeds to be used to finance capital projects. The Port called this amount ($8,066,540 for fiscal year 2010-11) "operating transfers in" even though it is not a transfer. o A negative amount of $1 million is shown for the terminal 2 wharf improvements capital project in fiscal year 2010-11.
o The five-year projection repeated the expected amount of grant revenue and related capital outlay expenditures in multiple years. Specifically, the grant revenues discussed on page 12 and related capital expenditures were shown in their entirety in fiscal year 2010-11; the amounts not used during that year were then carried forward and shown again in the five-year projection in fiscal year 2011-12. This resulted in an overstatement in total revenues and expenditures during the forecast period of over $8 million.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 79 • In the budget and monthly financial statements:
o Although the budget purportedly uses the cash basis, unused debt proceeds were not included. This leads to the need to add arbitrary revenue line items in the five-year projection for the amount of debt proceeds to be used to finance capital projects. The Port called these amounts "bond proceeds" and "capitalized interest" ($30,636,961 and $1,449,700, respectively, for fiscal year 2009-10).

Because of the inconsistent formats and errors, the Port's primary financial reports are hard to interpret, internally inconsistent, difficult to answer questions about, difficult to reconcile to each other and therefore of limited reliability to Port and City management.

Recommendations
The City should determine the most appropriate format, level of detail and basis of accounting to depict Port operations. This format should be used for every Port financial report or presentation. If the City determines that the Port's budget must be prepared on a basis of accounting other than full accrual, then the budget format should depart as little as possible from the format determined for the Port reports. The five-year projection should be prepared on the full accrual basis, consistent with enterprise fund and business organizations.

The number of errors and inconsistencies in the financial reports indicates an inadequate level of review. Each report should be reviewed in detail by both Port management and City Finance prior to finaliz.ation and distribution.

7. SECURITY DEPOSITS
The Port collects security deposits from some of its tenants and returns it or applies it to the final rent payment when a tenant leaves. The amount of the deposit is typically equal to one month's rent. The Port has no standard procedure for determining whether a security deposit will be required. Seven of the Port's thirteen leases require security deposits. Of the six tenants required to have a security deposit, the Port holds such deposits only for two of them. The Port also holds a security deposit of$3,000 for a former tenant who left the Port in 2009.

Recommendation
The Port should develop written procedures for security deposits, including the following:
• Circumstances a deposit is required, and how the amount is determined • Include requirement for a security deposit in the standard lease agreement • Maintain a separate listing of security deposits
• Account for security deposits in the general ledger
• Conduct annual reconciliation of security deposits to the general ledger • Circumstances and method used to refund deposits
• Amount of time Port will wait before writing off unrefunded deposit The Port should immediately collect security deposits from the four tenants having such requirement in their lease agreement who have not yet paid.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 80 8. CERTIFICATES OF INSURANCE
All the Port's lease agreements call for the tenants to maintain adequate insurance. Of the Port's fifteen fiscal year 2009-10 tenants, the Port did not have certificates of insurance or other evidence of insurance for all required coverages for nine tenants. In addition, one certificate of insurance on file had expired and one certificate evidenced a lower amount of coverage than required by the lease agreement.

Recommendation
The Port should obtain certificates of insurance from each tenant demonstrating the appropriate coverages, limits and effective dates. They should develop and implement procedures to assure that certificates of insurance are obtained when new tenants move in and each year thereafter upon expiration of each policy.

9. GOALS AND OPERATING STATISTICS
The Port develops objectives, strategic goals, supporting actions and success indicators as part of the budget process each year. For the fiscal year 2011-12 budget, the Port identified five key objectives, two strategic goals, twelve supporting actions and 24 success indicators. Success indicators are linked to supporting actions which are, in turn, linked to goals. However, the goals are not clearly linked to the key objectives.

The two strategic goals (maximize revenue and improve facilities) and key objectives have been the same every year for each of the last three years. Having the same goals each year is indicative that goals are not specific enough.

Most of the success indicators gathered and reported are not useful for management decision making nor accountability, or they are not clear. The cost to gather the information therefore outweighs their benefit. Examples of ineffective success indicators are:
o # of annual customer satisfaction survey completed (1) o # of Port industry conferences and meetings attended (4) o Generate and review monthly P & L with Port management (12) o % of state/fed security agency oversight compliance (100%) Examples of effective success indicators used by the Port include revenue generated per acre and total cost per acre.

Recommendation
The Port should clearly link its strategic goals to its key objectives each year. The goals should be very specific and measurable enough to know when they have been accomplished. The Port should also revise its success indicators to assure that they are meaningful, cost-beneficial to gather, and accurate. It is better to have a small number of meaningful success indicators than a large number that are not important or hard to interpret.

10. FINANCIAL PROCEDURES
The Port has no documented financial procedures except those adopted at the City level. Some of the Port's financial operations are unique and are therefore not adequately covered by City policies and procedures. The Government Finance Officers Association recommends in its Attachment D: Internal Audit of Port of Richmond, June 28, 2011 81 Recommended Practices that every government document its accounting procedures " ... as an essential component of a comprehensive framework of internal controls." Documentation of comprehensive accounting procedures will allow:
• Management to understand and evaluate whether procedures provide adequate internal controls and mitigation of risks
• Employees to review and revise procedures as circumstances, laws, technology and accounting standards change
• Internal and external auditors to assess the adequacy of the Pores internal controls • New employees to be trained to provide consistent service and quality upon staff turnover
The Port has been awarded eight grants totaling $14,550,038 for capital improvements as discussed on page 12. Although the Port had a significant grant in fiscal year 2007-08, it has no written or otherwise well-established procedures for accounting for grant expenditures, preparation and review of reimbursement requests and compliance with grant requirements.

Recommendation
The Port should identify and document its significant financial procedures, except for any existing City procedures that are considered adequate to address the Port's activities.

Procedures should include those tasks required to be performed by Port employees for all of the main types of business transactions, including:
• Cash receipts (invoicing, writing receipts, billing and collection) • Purchasing ( use of purchase orders, petty cash, purchasing cards, contracting, receiving)
• Payroll ( distribution of costs, travel and expense reimbursements) • Capital assets (acquisition of land and equipment, periodic physical inventories, capitalization thresholds, depreciation calculations)
• Reporting (internal monthly reports, periodic reports to the Council, annual audit)
• Budget (annual budgeting, budget vs. actual comparisons, cash flow projections, long-range planning)
• Grants ( cost accumulation, reimbursement requests, compliance monitoring) • Internal controls (segregation of duties, responsibilities for establishing and monitoring controls)

11. OPERATING PROCEDURES
The Port has not documented its standard operating procedures. Written procedures will:
• Ensure that everyone doing the work understands the task, including current and future employees
• Ensure consistency with other City departments doing similar tasks • Improve efficiency by assuring each task is thoroughly understood and reviewed by management, eliminating time spent "reinventing the wheel" each time a task is done, and reducing the need for re-work
• Improve quality by reducing inconsistencies in the work product Attachment D: Internal Audit of Port of Richmond, June 28, 2011 82 A Port tenant went bankrupt in November 2008, owing the Port 37 months of rent. $134,800 was approved for write off at the June 2011 City Council meeting, more than four years after the tenant moved out. The City did not file a claim with the bankruptcy court and therefore did not collect any amount through bankruptcy proceedings. The Port has no formal procedures for checking credit of tenants before they move in. The City did not comply with Administrative policy AP251 "Write Off of Delinquent Accounts" which states:
"Each quarter the Finance Department, the appropriate operating department director and the City Attorney shall review delinquent accounts receivable as shown on the Accounts Receivable Aging Report form (Exhibit 503-6) to assess their collectivity." Recommendation
The Port should identify its major operating procedures. These procedures may include property mgmt, disaster planning, communication with tenants, communication with vessels, tenant move-in and move-out, tenant background checks, security, budgeting and related monitoring, capital project planning and funding. For each major operating procedure, the Port should document the related tasks. 1bis documentation is best done by employees during their normal performance of each task and then reviewed by Port management.

12. MARINA DREDGING PROJECT
The City has asked the Port to manage the Marina dredging project. The Port is budgeting this project in fiscal year 2011-12. It is anticipated that the Richmond Marina enterprise fund will transfer $2.1 million to the Port to cover the cost of dredging. However, no mechanism for reimbursement of the Port for the cost of management and staff time has been established. The City charges the Port $942,802 per year for its share of City indirect costs so it is consistent with City practice to reimburse the Port for its costs of managing this non-Port project.

Recommendation
The City should estimate the cost of Port management and staff time on the Marina dredging project. 1bis amount should be included in the budget for reimbursement to the Port.

Attachment D: Internal Audit of Port of Richmond, June 28, 2011 83

Richmond City CouncilDecember 17, 2024

Richmond City Council
December 17, 2024