REPORT DIGEST

ILLINOIS INTERNATIONAL PORT DISTRICT

MANAGEMENT AUDIT
Release Date: July 2013


Release Date:   July  2013

State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL

To obtain a copy of the Report contact:
Office of the Auditor General, Iles Park Plaza,
740 E. Ash Street, Springfield, IL 62703
(217) 	782-6046 or TTY (888) 261-2887

This Report Digest and Full Report are also
available on the worldwide web at
www.auditor.illinois.gov

SYNOPSIS

The Illinois International Port District
(District) was created by the Illinois
International Port District Act (70 ILCS 1810)
as a political subdivision, body politic and
municipal corporation.  The District is located
on the south side of the city of Chicago and
encompasses approximately 1,500 acres.  The
District operates as a lessor of facilities
primarily for maritime operations, which include
storage facilities, dockage, and wharfage.  Our
review found pervasive management problems at
the District including:

Board Management

• The Board had not developed and approved a
long-term strategic plan for the development of
the District.

• Three committees established in the Board by-
laws did not meet during 2010 or 2011.

• The District could not provide written
agreements for Board appointees for 2010-2011.

Financial Management

•	The District’s operating losses for
2010-2011 totaled over $1.2 million ($965,702
loss in 2010 and $250,770 loss in 2011).  In
addition we found that the District:

– Had not established thresholds at which
expenses should be competitively bid;

– Did not have up-to-date policies regarding the
approval of expenses;

– Did not adequately segregate financial and
banking duties; and

– Did not require employees or Board members to
contribute toward the cost of their insurance or
pension.

Port Management

• The District did not have written leases with
all tenants (5 of 25);

• The District had not kept leases up-to-date in
some cases to reflect current arrangements (2 of
25);

• The District did not monitor leases to ensure
compliance with terms, did not have information
regarding subleases, and did not have controls
in place to monitor the collection of fees.

Personnel Management

• The District’s Personnel Manual and job
descriptions were outdated;

• Personnel files lacked complete information;

• The District did not have a formal timekeeping
system;

• The District made annual vacation payouts to
the Executive Director.  This amounted to
$50,828 and $44,871 for 2010 and 2011
respectively; and

• The District’s pension plan as of 2011 was
only funded at 30.52 percent.
Golf Course Management

• In 2010 and 2011, Harborside reported
operating losses of $844,386 and $964,225
respectively.  The District signed an agreement
with KS Harborside, LLC to manage Harborside
Golf Center effective January 2013.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

BACKGROUND

The Illinois International Port District
(District) was created by the Illinois
International Port District Act (70 ILCS 1810)
as a political subdivision, body politic and
municipal corporation.  The District is located
on the south side of the city of Chicago and
encompasses approximately 1,500 acres.  The
District operates as a lessor of facilities
primarily for maritime operations, which include
storage facilities, dockage, and wharfage.  The
District also has a golf facility (Harborside
International Golf Center).  (pages 6-15)

BOARD MANAGEMENT

The Illinois International Port District Act
establishes a nine member Board as the governing
and administrative body of the Illinois
International Port District.  We reviewed the
Board’s management of the District and found
that the Board had not developed and approved a
long-term strategic plan for the development of
the District.  Although the Board commissioned a
strategic study in 2012, the study only provides
options to the Board and does not constitute a
plan.  The Illinois International Port District
Act requires the District to adopt a
comprehensive plan for the development of the
port facilities.  The comprehensive plan
provided by the District has not been updated
since 1984.

Although the Board was holding monthly meetings
as is required by law, three committees
established in the Board by-laws did not meet
during the two-year period (2010-2011).  These
committees were the Economic Development
Committee, Marketing Committee, and Legislation
Committee.  We also reviewed the information
provided to Board members at meetings and found
that financial information provided to members
did not include District payroll information,
electronic fund transfers (EFTs), or bank
statements which limited the Board’s oversight
of financial activities of the District.

The Board has appointed consultants that assist
it in its duties including a legal counsel, a
Board Secretary, an engineer, and a Treasurer.
The District could not provide signed contracts
or agreements with these consultants for the
audit period (2010 - 2011) showing the scope of
services, duties to be performed, or the rate(s)
of compensation.  Total expenses during the two-
year audit period for the primary consultants to
the Board including legal counsel ($528,844),
engineer ($814,740), Treasurer ($50,000), and
Secretary ($50,000) totaled more than $1.4
million.  The District also paid the Treasurer’s
consulting firm an additional $70,000 during the
two-year period.

We reviewed the organizational structure of the
District and found that because of the off-site
locations of consultants, District records were
not in one central location and were not always
easily attainable.  During the audit we also
encountered several instances in which District
staff could not locate information and had to
contact a consultant to obtain the information
requested.  (pages 17-28)

FINANCIAL MANAGEMENT

For the five-year period 2007-2011, the District
had an operating loss for four of the five
years.  The District’s operating losses for
2010-2011 totaled over $1.2 million ($965,702
loss in 2010 and $250,770 loss in 2011).
The District also faced several financial
challenges including:

• Declining golf revenues;

• Declining account balances;

• A significantly underfunded non-contributory
pension plan.  The District’s pension plan as of
2011 was only funded at 30.52 percent;

• A $14,968,090 loan payable to the State of
Illinois which the District has not made a
payment on since the agreement was executed in
1980; and

• $15,000,000 in Variable Rate Revenue Refunding
Bonds, Series 2003 with escalating payment
provisions through 2033.

The Illinois International Port District has
established an annual budgeting process and
tracks income and expenses on a monthly basis.
However, our review of the District’s financial
management found that the District:

• Had not established thresholds at which
expenses should be competitively bid and did not
have contracts and agreements with vendors;

• Did not have up-to-date policies regarding the
approval of expenses;

• Did not adequately segregate financial and
banking duties;

• Had not established a property control system
that included tagging or tracking real property;
and

• Did not use fleet cards for employees with
take home vehicles and did not require mileage
logs to be submitted by employees assigned a
vehicle.

The District is required to prepare a complete
and detailed report and financial statement of
its operations and of its assets and liabilities
annually (70 ILCS 1810/22).  According to the
Board’s Treasurer, because the Board was trying
to determine if it wanted to change the basis of
accounting, the District was unable to provide a
copy of its 2010 audited financial statements to
the Capital Development Board as is required by
a loan agreement with the State of Illinois.  In
1980, CDB provided a $14,968,090 loan to the
District.  Under the terms of the agreement, the
District is to repay the funds received by
remitting not more than 20 percent of the gross
receipts and limited to not less than 20 percent
of net profits attributable to Iroquois Landing
operations.  According to the District’s 2011
audit’s notes, no payments have been made
through December 31, 2011, because Iroquois
Landing has not achieved a net profit to date.

The 2010 audited financial statements for the
District were issued with the 2011 statements.
In addition, the District’s audited financial
statement for 2010 and 2011 did not contain:

• Notes regarding assets located in sinking
fund(s); or

• A schedule showing an analysis of Iroquois
Landing’s profitability.

The District should also consider changing its
basis of accounting for financial statements to
GAAP (Generally Accepted Accounting Principles)
as is required by a bank reimbursement agreement
between the District and U.S. Bank related to
the 2003 issuance of $15 million in bonds.

In our review of employee benefits we found that
the District does not require employees or Board
members to contribute toward the cost of their
insurance or their pension plan.

In our review of a telecommunications expense we
found that the District paid for 65 lines in
August 2011 and concluded that the District
should reassess its telecommunications needs.
The District provided documentation to show that
in January 2013, 53 lines were transferred to
the new contractor responsible for managing
Harborside Golf Center.  (pages 29-55)

PORT MANAGEMENT

The Illinois International Port District
operates as a “landlord” and as such leases
land, buildings, and docks to private operators.
We reviewed lease information for primary
tenants of the District as of August 2012.  From
our review we concluded that the District:

• Did not have written leases with all tenants
(5 of 25);

• Has not kept leases up-to-date in some cases
to reflect current arrangements (2 of 25);

• Allowed lease agreements to expire but
continue in holdover without renegotiating the
terms of the leases, in some cases for several
years;

• Did not monitor leases to ensure compliance
with terms;

• Did not have information regarding subleases;

• Did not date stamp rent payments and receipts
when received; and

• Did not have controls in place to monitor the
collection of fees including receiving tonnage
reports and conducting record reviews of
tenants.

The District had few written policies and
procedures, and those that did exist needed
updating.  The District’s policies that govern
the use of port facilities and services,
including the rates charged for dockage and
wharfage, have not been updated in 30 years
(April 1983).  In addition, other critical areas
of operations including leasing and contracting
did not have written policies.  (pages 57-68)

PERSONNEL MANAGEMENT

As of August 2012, the Illinois International
Port District had a total of seven employees.
The seven employees included an Executive
Director, Executive Assistant, Administrative
Assistant, Maintenance Supervisor, Maintenance
Director, and two Golf Professionals.  All seven
were full-time employees.  As of August 2012,
these employees had a combined salary of
$722,400.  The District’s 2010-2011 financial
statements showed that staff salaries, and
benefits for District staff and board members,
totaled $1,407,029 for 2011 and $1,519,104 for
2010.

In our review of personnel management at the
District we found that:

• The District’s Personnel Manual and job
descriptions were outdated;

• Personnel files lacked complete information
including applications for employment, current
employee salaries, and annual performance
evaluations;

• Job descriptions did not exist for some
positions;

• The District did not have a formal timekeeping
system; and

• Although his employment contract only provided
for payment of accrued vacation days at the
conclusion of the agreement, we found that the
Executive Director was compensated for 68
vacation days in 2010 and 58 vacation days in
2011.  According to information provided by the
District’s Treasurer, this amounted to $50,828
and $44,871 for 2010 and 2011 respectively, in
payments in addition to his annual salary.  The
Executive Director’s salary effective January 1,
2011, was $201,144.72.  (pages 69-73)

GOLF COURSE MANAGEMENT

Harborside is a 458-acre golf facility with two
18-hole golf courses.  Harborside also has a
practice facility, a golf academy, and a
clubhouse with a restaurant.  Harborside opened
for use in 1995.

Harborside International Golf Center has had net
losses each year for the past five years
(2007-2011).  In 2010 and 2011, Harborside
reported operating losses of $844,386 and
$964,225, respectively.

For the two-year audit period (2010-2011), all
personnel for golf course operations and
maintenance, with the exception of two golf
pros, were provided by a contractor
(ServiScape).  The District paid this contractor
$2,266,398 in 2010 and $2,346,657 in 2011.  For
the two-year period, 83 percent of the payments
made to reimburse the contractor were for
maintenance costs while 17 percent were for
operational costs.

We reviewed two expenditures paid to this
contractor, one from 2010 for $171,409 and one
from 2011 for $138,996.  Although the District
was able to provide supporting documentation for
most costs, the documentation for the two
expenditures contained:

• A lack of detail for some expenses (for
example while a cash register receipt was
provided for a $1,025 Home Depot purchase, the
receipt had no detail of what was purchased);

• Reimbursement to the contractor for
questionable expenses including a 401(K)
administrative fee for $313, 401(K) matches for
two employees of the contractor for $386, cell
phones for $128, and items charged to a credit
card; and

• A $1,103 charge for “office support” without
any supporting documentation.

In addition, for both expenditures tested we
could not find evidence of preapproval of large
equipment purchases charged to the District.
For instance, the 2010 expenditure we sampled
that totaled $171,409 included a $79,381 charge
for three mowers.  The 2011 expenditure we
sampled that totaled $138,996 included a $39,362
charge for an excavator.

The purchasing policies provided by the District
require that no agreements, contracts, purchase
orders or other obligations involving the
expenditure of District funds for the purchase
of supplies, equipment and tools, or services
shall be entered into or executed until prices
for the items or services are obtained from at
least three different suppliers or contractors.
The expenditures tested contained no evidence of
bids for the equipment purchased.  In addition,
the contract with ServiScape states that “Upon
written request from the Port District’s
Executive Director, ServiScape shall, subject to
the rights of reimbursement pursuant to section
1.11, purchase for the Port District such
equipment and materials customarily utilized in
the maintenance and operation of golf course
facilities.”  While the purchases in the
expenditures we reviewed may have been allowable
under the terms of the contract, auditors were
provided with no evidence to show that the
District determined they were necessary or gave
prior approval of the purchases.  The District
signed an agreement with KS Harborside, LLC to
manage Harborside Golf Center effective January
2013.

The restaurant at Harborside was also operated
by a contractor.  We reviewed the contract and
payments and found that the contractor was not
filing monthly reports and making payments to
the District on a monthly basis as was required
by the contract.  The District collected
revenues in 2010 and 2011 of $213,577 and
$173,784 respectively, for the restaurant.
(pages 75-82)

RECOMMENDATIONS

The audit report contains a total of 26
recommendations to the Illinois International
Port District.  Appendix C to the audit report
contains the agency responses.

WILLIAM G. HOLLAND
Auditor General

WGH:MSP

AUDITORS ASSIGNED:  This Management Audit was
performed by the Office of the Auditor General’s
staff.