Presentation to the

Port of Seattle

Audit Committee

Results of 2008 Audit

May 5, 2009

Reports to be Issued

 Report on financial statements

• Unqualified opinion on the financial statements

• Opinion covers separate statements of the Enterprise Fund and the

Warehousemen’s Pension Trust Fund

• Report date is April 30, 2009

 Audit and report on Schedule of Net Revenues Available for Revenue

Bond Debt Service

• Same date as financial statements

 Audit and report on Schedule of Passenger Facility Charges (PFC’s),

receipts and expenditures and related internal controls

• One finding of noncompliance noted

 Audit and report on Federal Financial Assistance Programs and related

internal controls and compliance in accordance with Federal OMB

Circular A-133 (Single Audit)

• To be completed in May 2009

• No material instances of noncompliance noted to-date

 Letter of recommendations and observations

• No material weaknesses in internal controls identified

• Observations and recommendations noted

 Internal control environment

• Understand the design and implementation of key controls surrounding

all significant financial statement accounts and business processes

• Understand the design and implementation of controls over compliance

requirements

• Assess information technology general controls and application controls

• Test sample transactions of the capital assets related systems, payroll, cash

disbursements, leases, and environmental reserve

• Treasury and investment, debt, cash, budget, third party transactions and

financial close and reporting cycles tested through observations, inquiries

and walkthroughs

 Management estimates

• Pollution remediation obligation accruals, legal and insurance reserves,

allowance for doubtful accounts, grant-in-aid receivables, arbitrage

liabilities, actuarial valuations for OPEB liability and for the

Warehousemen Pension Trust amounts and disclosures

 Bonds and related accounts

• Arbitrage liability, capitalized interest, discounts and premiums, new debt

issuance, debt refunding, and compliance with covenants

Areas of Audit Effort

 Revenue recognition

• Operating revenue analysis using business indicators such as landed

weight, enplanements, crane movements, and boat counts

• Ad valorem tax levy, investment income, CFC, PFC, and federal grants

• Consideration of the collectability of related receivables

 Signatory lease and operating agreement

• Revenue requirements for landing fees and terminal rents according to

the agreement

• Cost elements - debt service allocation and operating and maintenance

expense

 Accounting for leases

• Airport concessions and fuel system, Seaport, and Real Estate leases

• Testing of lease terms, payments, and appropriate accounting treatment

and disclosures

Areas of Audit Effort - continued

 Net assets

• Consideration of classification for unrestricted, restricted, and invested

in capital assets, net of related debt

 Capital assets

• Consideration of capitalization policies and potential impairment as well

as testing of additions, retirements, overhead application, depreciation

 Implementation of Government Accounting Standard

Statement No. 49, Pollution Remediation Obligations

• Consideration of policies and procedures, estimate for liability and

related recoveries, and financial statement disclosures

• Consideration of components for large environmental sites

Areas of Audit Effort - continued

 Administration of federal awards and related administrative

controls

• One additional major program added for a total of three

• Total expenditures $46,748,591

• Airport Improvement Program - $37,184,650

• TSA Memorandum of Agreement - $2,084,578

• Port Security Grant - $1,630,000

• Test major programs for compliance with OMB-Circular A-133

requirements

 Passenger Facility Charge (PFC) Program Audit

• Review the Schedules of Passenger Facility Charge Program Receipts and

Expenditures

• Test for compliance with PFC requirements on a sample basis

• We noted one instance of noncompliance

Areas of Audit Effort - continued

 Annual inventory of capital assets should include the oldest

depreciating assets

 Several observations related to implementation of GASB 49:

• Methodology for estimating “bracket costs” should be consistently applied

• Support documentation of the rationale behind estimating multi-year

probabilities and for reducing the estimate should be retained

• Support documentation of the rationale behind environmental costs meeting

the capitalization criteria should be retained

• Specific policies and procedures pertaining to asbestos remediation should be

further refined

 Information technology observations

 Administration of federal awards

• Enhance written policy and procedures to include monitoring the existence

and completeness of federally-funded equipment and property

• Document review of Noise Program Third Party reports prior to submission

Letter of Recommendations

 There are no questioned costs noted to date for Single Audit or

PFC program

 Current year findings

• Single Audit – No material findings of noncompliance to-date

• PFC Program Audit – One finding identified

• Omission of refunds to an airline from the fourth quarter report

 Status of prior year findings

• Single Audit – One finding noted in the prior year

• Selection process for professional services was not appropriately

documented in the corresponding contract files as is required by

federal regulations

• The Port has cured the incomplete contract files by documenting the

selection process. Additionally, the Port has developed and

implemented a central depository of complete sets of contract

documents including all supporting documentation

• PFC – No findings in the prior year

Federal Awards – Findings and

Questioned Costs

 New accounting pronouncement effective in 2008

• GASB 49, Accounting and Financial Reporting for Pollution Remediation

Obligations

• The Port re-measured environmental liability and restated

beginning net assets by $4.7 million

• Approximately $11 million charged to expense in 2008

• FASB 157, Fair Value Instruments. The Port expanded investments and

debt financial statement disclosures

 Upcoming accounting pronouncements

• GASB 51, Accounting and Financial Reporting for Intangible Assets will likely

not have a material impact (2010)

• GASB 53, Accounting and Financial Reporting for Derivative Instruments will

likely not have a material impact (2010)

New Authoritative Literature

 Auditor’s responsibility under Generally Accepted Auditing Standards

 Significant accounting policies

 Management judgments and accounting estimates

 Posted audit adjustments (none)

 Passed audit adjustments (none)

 A letter of representation was provided to management

 Disagreements with management (none)

 Consultations with other independent accountants (none)

 Major issues discussed with management prior to selection (none)

 Difficulties encountered during the audit (none)

 Moss Adams is independent with respect to the Port of Seattle

 All Port personnel, throughout all departments, encountered in the performance of

our audit were courteous, responsive, and fulfilled all of our requests in a timely

manner

Required Communications