Every picture tells a story – Second hand risk

Wednesday, July 25th, 2012

Today’s risk briefing is prompted by a report on a Performance Audit of San Bernadino International Airport Operations, Development and Construction Activities. The report is dated June 6, 2011. It highlights what can happen in the absence of robust due diligence and lack of robust financial controls. The report concludes that SBIAA has not established effective internal controls over financial management activities. The internal control foundation is weak, policies and procedures are neither current nor effective and business processes are poorly documented. It has > 100 pages and should be mandatory reading for all finance, audit and procurement specialists. If you dont fancy reading the report look at the pictures at the end of the document. Every Picture tells a story! .

With regard to ‘Equipment Acquisition’   the conclusion was the SBIAA management did not conduct proper due diligence prior to purchasing used major equipment from Norton Development for the terminal building. SBIAA management did not assess its equipment needs, determine whether the used equipment was appropriate, or send staff to visually inspect the equipment prior to authorisation by the commission. Further, SBIAA management did not consider or analyse the long term costs of purchasing used equipment versus the alternative of purchasing new equipment prior to proceeding with the acquisition. There is a comment in the report that pressure was placed on the commission to make a decision quickly and BFL believe that should have sounded an alarm bell. The equipment was 20-36 years old. A staff report commented that, ‘staff has made significant inquiries to assure that the prices being paid are very low compared to any available alternatives for procuring such equipment’. The auditors note that they were not provided with documentation demonstrating the full findings or depth of such inquiries beyond a spread sheet. Some of the equipment was previously installed at New York’s JFK Airport, located less than two miles from the Atlantic Ocean in an area with a relatively high level of inclement weather conditions.

Returning to another major point. Many transactions detailed in the report were conducted with a known felon.  The report supports an approach to diligently conduct a risk analysis on procurements. That is exactly what Procurisk   is designed for.

Contract Brian Farrington Ltd. 0n +44 (0)1744 20698  for further information