Audit Faults Lease Practices at L.A. Port

The Port of Los Angeles is awarding long-term leases in a secretive selection process that relies on little analysis or documentation in rating shipping companies, according to an audit released Wednesday by the city controller.

The 70-page document described a culture in which a clique of senior staff members depends on instinct more than rigorous financial review in making far-reaching decisions for the port’s future.

Such loose business practices expose the city to legal and financial risk, the audit said, and make it impossible to determine whether the port is “protecting or serving the public’s best interests.”

“Though the port asserts it operates like a big business, it seems to be more like the backroom than the boardroom,” City Controller Laura Chick said in a letter to Mayor James K. Hahn and the City Council. “The port should take a large step toward needed reform by beginning to shine a light on how it conducts the people’s business.”

Neither Nicholas G. Tonsich, president of the commission that oversees the port, nor port Executive Director Larry A. Keller, would comment on Chick’s audit. The port said it was reviewing the audit.

“We look forward to working with the controller and the mayor’s office to implement any procedural improvements that will enhance the port’s profitability and economic value to the city of Los Angeles,” port officials said in a statement.

The sprawling port, which collected nearly $200 million in revenue last year, serves more than 80 shipping lines carrying everything from cars to toys.

The audit, conducted for Chick by the firm Sjoberg Evashenk Consulting, described the port’s finances as healthy. More cargo is coming in, revenues are up and the port’s assets are growing.

Much of the port’s revenue comes through eight shipping companies with leases that run for as long as 25 years. With so much money and economic activity at stake, the audit said that in awarding leases the port should “maximize the benefit to the port and the city.”

There is no way to confirm that this is now happening, auditors said.

When a berth becomes available, the port does not offer any public notification. Port officials told auditors that when an opening arises it is “common knowledge among the shipping companies” and that there is no need to advertise. Instead, a port official meets privately with prospective tenants. The port said it evaluated candidates based on criteria that included “deep pockets,” relations with the port and business volume.

Yet the port “could provide little evidence” that it engaged in such an analysis, the audit said.

Port officials told the auditors that staff “instinctively ‘know’ which company would fulfill the selection requirements.”

As proof of their skill, port executives cited the port’s financial success -- a point that did not impress Chick. “Yes, we’re making money,” she said in an interview. “And that’s great. But it’s not possible to tell if we could have done better, because they don’t have the paperwork. And it’s also not possible to see if we were making the best environment-friendly decisions.”

The port told auditors that it considered more than one prospective tenant, but it could not provide any documentation that that was the case. Aides typically make an oral presentation to the governing board in a closed-door meeting. No written report is supplied to the board, and no minutes of the meetings are kept.