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PORT OF SEATTLE

MEMORANDUM

DATE: June 26, 2009

TO: Audit Committee

FROM: Melinda Miller, Director, Real Estate Portfolio & Asset Management

SUBJECT: Ninety-day follow-up to internal audit report of the Bell Harbor International

Conference Center management services agreement No.488, Audit Period

January 1, 2005 through December 31, 2007

Summary of Audit Findings and Management Actions:

Finding: a. Lack of an Established Level of Monitoring Related to the Third-party Employee

Compensation Costs Paid by the Port

Action: As part of the annual budget review with CHI, Management will request details of the

bonus compensation plan and review the acceptability of the plan.

Finding: b. Unsubstantiated Methodology or Support for Cost Allocation

Action: As part of the annual budget review and approval with CHI, Management will review

and approve the proposed allocation of CHI staff that is partially assigned to Bell

Harbor. Any significant changes during the year will be reported in the monthly

reporting package.

As requested by the Audit Committee, we have reviewed the 2009 allocations and

found them reasonable.

Finding: c. Improper Advance of Public Funds for Private Activities

Action: By the end of 2006, to tighten controls, BHICC had stopped paying any expenses on

behalf of CTA or other CHI-managed facilities (e.g. WTCSE). In all cases, these

expenses were properly reimbursed. CHI accounting personnel for BHICC and

WTCSE have been advised to pay only invoices directly related to those facilities.

Memorandum

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Finding: d. Improper Classification of Expenses

Action: As Management reviews the financial reports on a monthly basis, we will continue to

ask the questions necessary to ensure that CHI is booking accounting transactions in

accordance with Port policy.

The specific issues identified in the audit have been corrected. BHICC is no longer

booking pass-through expenses on a net basis. Effective in 2008, revenue from pass-

though transactions has been recorded on a gross basis and the related expenses have

been recorded as an operating expense.

Finding: e. Ineffective Monitoring of Sales Activity to CHI and its Affiliates

Action: So that Port staff can better monitor related-party sales activity in the future, the

monthly reporting package has been expanded to include formal communications on

related-party activity including related-party use of the BHICC facility and services.