Summary

Audit Scope

The scope of this audit of the Florida Seaport Transportation and Economic Development (FSTED) Program focused primarily on the FSTED Program’s funding structure, organizational structure, and administration of the Series 1996 Revenue Bond Program and the related activities of the bond program administrator. For each of these areas, our audit included examinations of various transactions (as well as events and conditions) occurring during the period July 1, 1998, through June 30, 1999, and selected actions taken prior and subsequent thereto. The issuance of the Florida Ports Financing Commission Revenue Bonds, Series 1999, issued in October 1999, was not within the scope of this audit.

Summary of Report on Compliance and Internal Control

We found that FSTED Program management may not have, in several material respects, complied with the significant provisions of laws, administrative rules, and other guidelines governing the FSTED Program. Matters noted on audit relating to noncompliance with various guidelines and/or significant deficiencies in the design or operation of the internal control for the FSTED Program are presented in the Summary of Audit Findings below:

Overall Conclusion

The FSTED Program was created (effective July 1, 1990) pursuant to the provisions of Section 311.07, Florida Statutes. The management and administration of the FSTED Program includes the activities of the FSTED Council as well as those related actions of the Florida Ports Financing Commission (FPFC) and the FPFC’s bond program administrator, the Florida Ports Council (FPC). We found that the effectiveness and efficiency of the FSTED Program could be improved through various modifications in the management and administration of the Program as well as in the related laws establishing and implementing the Program. Additionally, the Attorney General of the State of Florida should be consulted in regard to several issues of law which, in our opinion, require clarification. The Chairman of the FSTED Council, in his written response to several of the findings in this report, expressed disagreement with the conclusions contained herein. We find no basis for reconsideration of our conclusions.

Summary of Audit Findings

Findings and Recommendations for Legislative Action

Funding Provisions

The funding methodology for the FSTED Program has not provided a clear identification as to the extent of the State’s funding obligation, nor has it provided the State with adequate oversight of the administration of the applicable debt issued by a non-State entity.

Under the current funding structure of the FSTED Program, moneys are appropriated annually by the Legislature to provide debt service payments on bonds issued by the Florida Ports Financing Commission (a non-State entity). However, this funding methodology has not provided a clear identification as to the extent of the State’s obligation to provide such funding, nor has it provided the State with adequate oversight of the administration of the debt. We recommend that the Legislature:

In making future funding decisions for ports, consider the appropriateness of making guaranteed recurring funding commitments of unspecified periods to non-State entities.

Evaluate the potential for the State to assume the responsibility for issuing such debt as an obligation of the State and providing for the repayment of such.

Consider amending the provisions of Section 320.20, Florida Statutes, to establish a specific period of time for which the State intends to appropriate these moneys.

Organizational Structure

The current assignment of responsibilities does not provide for an evaluation of all proposed port projects from a Statewide transportation and/or economic benefits perspective.

The current assignment of FSTED Program responsibilities does not provide for an evaluation of all proposed port projects based on each project’s relative merits from a Statewide transportation and/or economic benefits perspective. As a result, the State cannot be assured that its resources are being utilized in the most effective manner possible. We recommend that the Legislature consider amending the provisions of Chapter 311, Florida Statutes, as follows:

The port directors, sitting as the FSTED Council, should be responsible for the development of a proposed list of port projects to be funded.

The Florida Department of Transportation and the Office of Tourism, Trade, and Economic Development should be responsible for the review and approval of proposed port projects and authorized to add, delete, or reprioritize port projects proposed by the FSTED Council.

Issuance and Administration of Series 1996 Revenue Bonds

The Legislature should consider authorizing the issuance of future bonded indebtedness for port projects by the Division of Bond Finance.

To ensure the issuance and administration of any future bonded indebtedness to fund port projects in the most cost-effective manner, the Legislature should consider specifically authorizing the issuance and administration of such bonded indebtedness by the Florida State Board of Administration’s Division of Bond Finance and/or other appropriate State agencies.

Findings and Recommendations for Management

Related-Party Transactions

Some transactions may not have been made at arm’s length and in the best interest of the FPFC and the State.

Some transactions among the Florida Ports Financing Commission (FPFC), the Florida Ports Council (FPC), and the Florida Maritime Services Corporation involved companies that had contractual relationships with these entities and companies that shared board members, officers, or employees with these entities. These relationships may have resulted in transactions that were not made at arm's length and in the best interest of the FPFC and the State. We recommend that the FPFC restrict activities among the various entities with common directors and/or officers.

Issuance and Administration of the Series 1996 Revenue Bonds

In December 1996, the FPFC issued the $222,320,000 Series 1996 Revenue Bonds. Our review of the Series 1996 Revenue Bond Program disclosed that the FPFC’s internal controls were not adequate to promote and encourage the achievement of management’s objectives relating to compliance with controlling laws, administrative rules, and other guidelines and the economic and efficient operation of the Program.

FPFC records did not document the basis for its decision to issue the Series 1996 Revenue Bonds through the use of a negotiated sale.

FPFC records did not document, as a matter of public record, the basis for its decision to issue the Series 1996 Revenue Bonds through the use of a negotiated sale rather than a competitive bid process. In the absence of a financial or market analysis or documentation evidencing consideration of the numerous factors affecting a determination as to the most cost-effective method of selling the bonds, the FPFC was unable to demonstrate the propriety of its actions. We recommend that the FPFC document the basis for its decision to issue bonds through a negotiated sale.

The FPFC acquired many professional services without the benefit of competitive selection procedures, written agreements, and/or adequate payment documentation.

The FPFC acquired professional services in connection with the issuance and administration of the Series 1996 Revenue Bonds at a total cost of approximately $2.5 million. Many of these services were obtained without the benefit of competitive selection procedures and/or written agreements. Additionally, the basis for FPFC payments for these professional services was not always apparent, inasmuch as vendor invoices or similar documentation was not always available or not always in sufficient detail to allow a determination as to whether such costs were appropriate. We recommend that the FPFC document that the payments were appropriate and, for any future debt issues, competitively select the providers of such professional services and enter into written agreements for all services.

The FPFC paid a CPA firm $9,750 for services that were already available from other sources at no additional cost.

The basis relied upon by the FPFC in acquiring the professional services of a certified public accounting (CPA) firm was not apparent considering that such services were already available to the FPFC from other sources at no additional cost. Additionally, the FPFC approved the payment of an invoice from this CPA firm in an amount in excess of the amount previously agreed upon without clearly establishing in its public records the basis for such approval. The total amount paid to this CPA firm was $9,750. We recommend that the FPFC document the need to acquire these services and the basis relied upon to make these payments.

The basis for the FPC’s compensation as bond program administrator and the assessment of the administrative services fees to the ports has not been clearly established.

In connection with the administration of the Series 1996 and Series 1999 Revenue Bonds, the FPFC retained the services of the FPC to serve as the bond program administrator and assessed each participating port an administrative services fee. However, the basis for the FPC’s compensation and the assessment of the administrative services fees of $859,069 to the ports has not been clearly established as a matter of public record. We recommend that the FPFC reexamine the basis for the FPC’s compensation and the assessment of the administrative services fees to the ports and amend the program administration agreement as appropriate.

The FPFC’s program administration agreements with the FPC severely restrict FPFC’s ability to terminate the agreements.

The termination clause included in the FPFC’s program administration agreements with the FPC is not consistent with that used in other contractual agreements and appears to severely restrict the FPFC’s ability to terminate the agreements. We recommend that the FPFC amend the program administration agreements to provide for more flexibility regarding termination of these agreements.

Reimbursement requests were not always supported by adequate documentation and amounts reimbursed for specific projects sometimes exceeded amounts approved.

Internal controls over disbursements from the proceeds of the Series 1996 Revenue Bonds by the bond trustee to the participating ports were not adequate. The duties and obligations of the bond trustee to review and evaluate the adequacy of supporting documentation submitted by the ports as part of their reimbursement requests were not clearly defined. As a result, reimbursement requests submitted by the ports to the bond trustee were not always supported by adequate documentation and, in several instances, amounts reimbursed to the ports exceeded the amounts approved for specified projects (approximately $9 million) or were duplicative of other reimbursements received by the ports (approximately $2.3 million). The duplicate reimbursements were discovered by the ports. We recommend that the FPFC establish and implement controls which include a review and evaluation of the adequacy of documentation submitted by the ports prior to disbursing any moneys.

Bond escrow account transfers appeared inconsistent with the FDOT/FPFC master agreement and together with related interest earnings may have been expended improperly.

Moneys totaling approximately $6.5 million were transferred from the Florida Ports Escrow Account with the State Treasurer to the bond trustee in a manner which appears to be inconsistent with the provisions of the master agreement between the Florida Department of Transportation (FDOT) and the FPFC. Additionally, the 60-day period allowed for advance of the funds prior to the debt service payment dates appears excessive. Moneys transferred to the bond trustee in excess of the amount needed for debt service payments and the $619,000 in related interest earned thereon may have been inappropriately expended by the FPFC. We recommend that the FDOT and the FPFC take actions to evidence the propriety of the transactions and ensure the proper control over future escrow account transfers and related expenditures.

Government in the Sunshine

The meetings of the FPC were not advertised in a manner that provided the general public the opportunity to attend.

Florida’s Government-in-the-Sunshine Law (Section 286.011, Florida Statutes) provides a right of access to government meetings at both the State and local levels and requires that reasonable notice of such meetings be given to the public. The meetings of the FPC were not advertised in a manner that provided the general public the opportunity to attend such meetings. We recommend that the FPFC seek the opinion of the Attorney General as to the applicability of the Government-in-the-Sunshine Law to the meetings of the FPC.

FPFC Travel Expenses

The basis relied upon by the FPFC to pay for certain travel expenses of the FPC was not apparent.

The FPFC budgeted and paid to the FPC $20,000 for travel expenses during the 1998-99 fiscal year. The basis for the FPFC’s payment of $3,146.82, including $1,158.58 for alcoholic beverages and cigars (which was subsequently reimbursed by the FPC) is not apparent. We recommend that the FPFC document the basis relied upon to pay the FPC the $1,988.24 and, as appropriate, ensure that this remaining amount be recovered from the FPC.

Lobbying Services

The FPC has expended public moneys for lobbying activities without any apparent authority.

During the 1998-99 fiscal year, the FPC paid $38,750 for lobbying services from moneys derived, in part, from entities not authorized to expend moneys on lobbying. We are unaware of any specific provisions of law or interpretation of the Attorney General or the courts as to the authority of a corporation such as the FPC to expend public moneys for lobbying activities. As a result, the authority relied upon by the FPC to expend public funds for lobbying activities is not apparent. To clarify the FPC’s authority to expend public moneys for lobbying activities, we recommend that the FPC, in consultation with the FSTED Council, seek an opinion from the Attorney General as to the authority of the FPC to expend public funds for lobbying activities.

FDOT Project Monitor

The engineering firm serving as FDOT project monitor was also responsible for monitoring projects on which it had performed design and engineering services, thereby creating the appearance of a conflict of interest.

The engineering firm hired by the FDOT to serve as project monitor for the Series 1996 Revenue Bond program was also under contract to one of the ports to perform design and engineering services on selected projects funded by the Series 1996 Revenue Bond program. As a result, this engineering firm was responsible for monitoring projects on which it had performed design and engineering services, thereby creating the appearance of a conflict of interest. The FDOT’s five-year contract with this firm totaled $724,000. According to port records, the firm had been paid approximately $4.1 million during the audit period for engineering services provided to the port. We recommend that the FDOT continue efforts to ensure that potential conflicts of interest do not exist.

The written responses from the Chairman of the FSTED Council (on behalf of the FSTED Council and the Florida Ports Financing Commission); the Secretary of the Florida Department of Transportation; the Secretary of the Florida Department of Community Affairs; and the Director of the Office of Tourism, Trade, and Economic Development to the audit findings and recommendations included in audit report No. 13612 are presented as Appendices B through E, respectively.