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Oakland Port audits: questionable spending Matthai Kuruvila Updated 10:50 p.m., Monday, December 10, 2012 Swank hotels. Luxurious meals. Wine. A U2 concert. Raiders and Warriors games. Tiffany & Co. silver key rings. These were among the nearly $200,000 in "questionable" expenditures by Port of Oakland workers in 2011, according to a pair of audits released Monday that looked at what employees purchased with public dollars on their work-issued credit cards. An internal audit of 2011 expenses was already under way in October when news emerged that the port's executive director, Omar Benjamin, and maritime director, James Kwon, inappropriately spent $4,537 at a Houston strip club in 2008. Those revelations prompted port commissioners to ask for an additional, external audit by San Francisco firm Arnold & Porter, LLP. While port executives say it's not unusual for workers to wine and dine potential clients - and even hand out promotional items like key chains - the internal audit found that $194,087, or roughly 10 percent of all credit card expenses in 2011, failed to meet proper spending and disclosure guidelines. Additionally, the audits found that port employees spent $67,404 in gifts and giveaways that may have violated federal bribery laws and state gift laws. The gifts included $19,493 in wine and liquor, $11,397 in Tiffany silver key rings and $1,683 for U2 concert tickets for port staff, a port tenant's staff and four personal guests. "Many of us in the organization were shocked when we learned of the improper expenses," said acting Executive Director Deborah Ale Flint. "The investigation reveals that we need to change our oversight." Flint and the port's Board of Commissioners, which released the audits on Monday, said they initiated the audits as a way to build greater public trust and transparency in the wake of the scandal. They also outlined a series of oversight changes that are either under way or complete. The port's own internal audit looked at 82 employees who had port-issued Visa cards and their expenses in 2011, which totaled $1.9 million. The cards have a single-transaction limit of $1,000 to $25,000, depending on the employee. On a monthly basis, the limit varies from $2,500 to $50,000. 'No criteria' "There appears to be no criteria for granting spending limits," the internal audit states. Questionable expenses outlined by the audit include: -- $90,098 for purchases from an unidentified Southern California vendor that the California secretary of state's office lists as having a suspended business status. -- $83,467 for hotels where the nightly cost was between $300 and $670 per night. They were domestic and international hotels. -- $2,842 for a managers' retreat at a vineyard in Santa Rosa. -- $1,409 for four rental cars at a conference two blocks from the training venue. The Port of Oakland is the fifth-biggest container port in the nation. The airport, which is also overseen by the Port of Oakland, is the second-busiest airport in the Bay Area and the 12th-busiest cargo airport in the country. Flint said the $1.9 million in credit card expenses are less than one half of 1 percent of the port's $437 million budget. Gilda Gonzales, president of the port's Board of Commissioners, said at Monday's board meeting that "the vast majority of port employees have followed the rules and have been doing the right thing." She emphasized that there are only three expenditures that were not tied in some fashion to a legitimate business purpose. Those three cases involved two strip club visits by Kwon and Benjamin. The third incident involves an unidentified employee who double-billed the port for reimbursements. The expenses for those three incidents have been repaid, according to Flint. Gonzales added that the port was making changes "to ensure that we don't see improper expenditures in the future." Benjamin retired in November. The board announced Monday that Kwon, who is paid $214,248 annually, will resign Dec. 28. He will be kept on for seven months as an "annuitant," which means he will continue to receive his salary but won't accrue pension benefits. The port scandal erupted in October after The Chronicle revealed that Kwon spent thousands in public money at a Houston strip club. Another strip club Among the audit revelations was that Kwon used his port credit card to pay for a $925 night at a second strip club in Minneapolis in September 2009. Both Kwon and Benjamin stated that there were no business contacts at either club, according to the audit by Arnold & Porter. They also stated that they did not purchase any "special services" at the strip clubs. Benjamin gave an unusual explanation for the expenses. Benjamin, according to Arnold & Porter investigators, said "he now believes he and Kwon were victims in Houston of a billing scam." The employee who double-billed the port was reimbursed twice for gifts totaling $1,959. In addition, the same employee was reimbursed for a $904 deposit he or she made for an unidentified purchase - and the deposit may have been refunded to the employee. That employee's company card was eliminated and auditors recommended recouping duplicate reimbursements. As a result of Benjamin and Kwon's departures as well as other staff changes, the port now has a new executive director, board president, maritime director and aviation director. "I don't want to diminish what happened," said Gonzales. But "now we have new leadership going forward." Agency's funding The Port of Oakland is an unusual public agency in that it is largely funded through business revenue from leases as well as federal and state grants. Flint and others said that means the port functions more like a business than most public agencies. "It is necessary to travel and have business meetings," said Flint. "The exchange of promotional items is commonplace. ... What we need to do going forward is (to ensure) that those activities happen, but within the guidelines of best practices." Sometimes, cardholders split expenses to avoid hitting their spending limits. Those split expenses totaled $89,319. Of that money, $10,306 was spent on Christmas gifts, and tickets to Golden State Warriors and Oakland Raiders games. Even though the Tiffany key rings were listed as questionable, Gonzales defended the purchase. "The actual use of them from a promotional point of view, that's appropriate," she said. "Will the next one be a pen or a shirt? It's part of the way we do business. It may still be a Tiffany key chain." In response, port management said it plans to establish clearer standards and control over gifts. Sometimes, port card holders didn't list the reasons for expenses at all. Of $50,000 worth of meal and entertainment expenses that auditors randomly sampled, not one included the detail required by the Internal Revenue Service or even the port's own policies. Among those transactions were 36 that had no receipts at all. Cardholders spent $1,906 in nonbusiness meals - including between port employees, an expenditure that the port prohibits as a reimbursable expense. Matthai Kuruvila is a San Francisco Chronicle staff writer. E-mail: mkuruvila@sfchronicle.com Twitter: @matthai |